This is the best time to buy your house. The real estate prices are down and banks are slashing home loan rates. This begs the question. How much home loan can I take? Well, if you are rich this question doesn’t arise. Otherwise, you must know how much home loan you can afford.
Down-Payment On Home Loan: Down-payment is a must when availing a home loan. Down-payment ranges from 10-20% depending on the lender. (This could be a bank or NBFC). Higher the down-payment, lower the home loan EMIs.
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When it comes to home loan EMIs, banks and NBFCs have an unwritten rule. Home Loan EMIs mustn’t exceed 40-45% of net salary. In most cases its 40% of net salary. All EMIs together mustn’t exceed 50% of net salary.
Let’s understand this with an example. Your monthly take-home salary is Rs 1.2 Lakhs. Banks will sanction home loan up to 40-45% of net take-home salary. So, banks will lend only if home loan EMIs don’t exceed Rs 48,000 to Rs 54,000.
Let’s find this using IndianMoney home loan EMI calculator. We have home loan rates at 9% and tenure of 20, 25 and 30 years.
30 year home loan: Rs 60-68 Lakhs.
25 year home loan: Rs 57-64 Lakhs
20 year home loan: Rs 54-60 Lakhs.
But, can you manage home loan EMIs of Rs 48,000 to Rs 54,000 with a salary of Rs 1.2 Lakhs? Having expenses of Rs 60,000-Rs 80,000 will make the home loan unaffordable. Now, if you have other loans (say you are repaying an EMI of Rs 10,000), the home loan EMI affordability comes down in the eyes of the bank to Rs 38,000 - Rs 44,000 range.
See Also: How to Select the Best Home Loan?
Many double-income couples avail joint home loans. The main reason is double tax benefits. Both you and spouse get to enjoy Section 80C tax benefit on home loan principal and Section 24 on home loan interest separately. What’s often ignored is the increase in home loan affordability. (This is because both you and spouse avail home loan together). How does this work?
Let’s say both husband and wife earn Rs 1 Lakh a month. The total income is Rs 2 Lakhs a month. The upper cap on home loan EMI is 40% of Rs 2 Lakhs. This translates to Rs 80,000. So, home loan eligibility automatically goes up. You can easily buy a larger and more costly house.
Note: When availing joint home loan consider all possible scenarios. What if one of you stops working? With loss of income you could struggle repaying home loan EMIs.
Home loan EMIs are not the only problem. You have to make the down payment from your own pocket. How does this work?
Let’s say you earn Rs 1.2 Lakhs a month and plan to avail a home loan with tenure of 25 years. For the affordable Rs 48,000 EMI, you get a home loan amount of Rs 57 Lakhs. Banks only lend up to 80% of the cost. This means you have to pay Rs 14.25 Lakhs yourself as home loan down-payment. Now, if you can’t arrange the money yourself, the bank won’t give you the Rs 57 Lakh home loan.
This could be a big problem. You have to pay home loan EMIs and the rent. Can you afford this even if bank sanctions home loan? What about financial goals? Would you have to make a compromise? Would you wait for salary to rise before investing for financial goals? Before buying a house and stretching your budget do check if you can manage home loan EMIs.
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