How to Calculate My House Affordability in India?

Owning a home is one of the top aspirations in life. Though perceptions are changing due to the fluidity of jobs and ambitious career plans, owning a house remains one of the signs of an individual’s social well-being. But an investment in a house is a big ticket and a long-term one with lots of costs involved.

We bring you a guide to check if you can afford that lovely home you have been eyeing for some time.

Think about the down payment

Once you have finalised the cost of the house, you would need to approach lenders. But lenders being lenders, they do not lend until they are sure about your commitment to the loan. Hence, the down payment. A figure of anywhere between 15% -30% of the cost of the house needs to be paid as down payment.

So, for that Rs 50 lakh home, your down payment would come in at Rs 7.5 – Rs 15 lakh.

No small amount by any standards. It is good to keep in mind that the bigger the amount of your loan, your down payment amount would proportionately raise.

Think about how you plan to raise the amount needed for down payment of the loan. A savings of Rs 2 lakh per year invested at a rate of 10% for roughly 3.5 years would be needed to pay for a down payment of Rs 7.5 (approx). You can use online calculators available to see how much you would need to invest to raise this amount.

You can alternatively borrow to fund this amount, take a personal loan or pledge valuables. However, these should be the last option. The rate of interest charged on personal loans is quite high and you do not want to be paying an extra-heavy EMI in addition to your home loan EMI.

Think about the EMIs

Once you have crossed the hurdle of funding the down payment amount, you then face the big question of getting the loan approval and the further question of EMI payments. The maximum recommended percentage of your EMI to net income is 30%. However, certain lenders also extend this percentage to 40.

All said and done, 30 or 40%, it is you who is going to bear the burden of EMIs, so it is important to evaluate not only your current financial position but the entire tenure of your loan.

Think of all possible scenarios. Is your spouse likely to stop working in the future? Are you looking to quit your job and take the entrepreneurial track? Are you looking to acquire a higher educational qualification? Or a family emergency may come up.

Your EMI will continue to be payable despite any of the situations mentioned above.

Other costs to be considered

Down payments and EMIs are big factors that decide your house affordability. However, there are many more factors which also merit some consideration. They are:

Pay rent as well EMI: If you have shortlisted an under-construction property and there is some time before you get the possession, then you have to see if you can afford the rent as well as the pre-EMI.

Cost of interiors: When you buy a house, you would want to design it in the best possible way. These expenses can go up to 10-15% of your project cost. In fact, the sky is the limit to what you can do with your home!

Expenses associated with home loan: In addition to the upfront costs of a home loan, an applicant would need to cater to other costs such as processing fees, legal and inspection fees, document retrieval fee, late payment fee etc.

Maintenance costs: Remember the fancier the amenities provided in a housing complex, the higher the maintenance costs. You should be ready to shell out such amounts as long as you occupy the house. Often staying at high-end complexes can influence you to change your lifestyle. Make sure you are up for all those.

The cost of an illiquid asset: Real estate investments are not at all liquid. You should always figure in the cost of making this investment versus a liquid investment like a mutual fund.

Buying a house is a very big financial decision. We would advise you to act with great caution and make a wise investment by taking into consideration all the above-mentioned costs.