Owning a home is a dream for most people. But this requires you to make a budget and know how much you can afford so that the journey is a smooth one. Here are some ways to help you get started
How much can I afford?
There are three financial factors you’ll have to consider here - house down payment, home loan EMIs and your income.
House down payment
About 20% of the total price of your house is down payment which you’ll have to be ready with. The home loan will not pay for this hence, start investing now so that you’re prepared when you find your dream house.
Home loan EMI
Considering the interest rates and the number of years to repay the full loan amount, you’ll have to be prepared to pay your EMIs for a long time. One good way to check if a house fits into your finances is by making sure the EMI doesn’t take up more than 30% of your monthly take-home salary. If you have other EMIs you’re paying off apart from home, all of them together shouldn’t take up more than 50% of your monthly income.
This is the most important factor that decides your affordability. Given the current costs, the value of your house should not exceed more than 4.5 to 5 times your annual income.
The above factors talk about the price of your house only. Apart from buying your dream house, you should also get it registered. This will cost about 5-8% of the price of your house.
This is not included in your home loan amount which means you will have to plan and keep a corpus ready for this.
For instance, if you choose to buy a house which costs Rs.1 crore, the breakup would be as follows:
Down payment* = Rs.20 lakhs
Registration - 8%** = Rs.8 lakhs
You need to have a corpus of about Rs.28 to 30 lakhs beforehand
The bank will pay your builder the remaining 80 lakhs at an interest rate of 8.8% for a period of 20 years. Your monthly EMI would be Rs.78,048***. Factoring the thumb rule of ‘EMI not exceeding 30% of monthly income’, your take-home salary should be Rs.2,50,000 to comfortably buy a house worth Rs.1 crore.
If you start investing 10% of your home loan EMI in the best mutual funds, you earn the price you’ve paid for your house back within the same tenure. Not sure how? Scripbox is the answer! Best mutual funds scientifically selected, automated process and regular tracking will make your investment journey a ‘invest and forget’ affair.
Happy investing! :)
*Down payment assumed to be 20%
**Registration and ground value assumed to be 8% of price of house
***For the assumed interest rate of 8.8%