A Small Guide to Help You with Prepare for your Property Purchase

Mar 09, 2017

Buying a house is the biggest financial decision for most people. Also the sky-high prices of real estate these days has made it a given thing that people will have to take home loans to purchase their houses.

So here are a few factors to help you guide in your decision of purchasing a house on borrowed funds.

Budgeting for House (Loan, EMI, Tenure)

If you are borrowing, then understand that no lender will give you a loan amount, whose EMI is equal to more than 40% of your take home salary. So if your income is Rs 1 lac, then ideally you will be given a loan that has an EMI of Rs 40,000 or less.

So taking the figure of Rs 40,000, we can reverse calculate your loan amount. Suppose you want to take a loan for 20 years and current rate is around 10%. So the amount that you can get as loan is about Rs 41 lac.

Now lender will also lend you for only 80% of the property prices. Rest 20% has to come from you. So if Rs 41 lac is the 80% of house cost, the remaining 20% is Rs 10.3 lacs - which you need to bring in.

So the cost of property that you can purchase is Rs 41 lac + Rs 10.3 lac = approx. Rs 51 lacs.

You can increase your loan amount if you club your spouse's income with yours. But that will also mean that your EMIs will rise and in case you spouse decides to quit work, you will have to ensure that you are capable of paying the full EMI from your own salary.

Saving for Down payment

Down payment itself is not a small amount given 20% of the cost. So you also need to save for this. Some people borrow for this too but that means you will be putting sever pressure on you finances. So its best to postpone you decision to buy a property till you have saved adequate down payment amount. You can use low-risk instruments like fixed deposits or debt funds if you want to save the amount in next few years.