In this article
Quick summary
- Work out the EMI you can pay in peace, then find the loan that fits it. Don’t start from the flat’s price.
- Budget for the down payment and the extra costs, not only the loan.
- Test your EMI against a higher interest rate before you commit.
Most people shop for a home the wrong way round. They fall for a flat, ask the bank how much it will lend, and then stretch to match. The bank’s answer is the most it is willing to risk on you. It says nothing about the EMI your household can carry for twenty years, through school fees, medical bills and a bad year at work.
The safer method is to work backwards. Decide the EMI you can pay without losing sleep, convert that into a loan amount, add your savings, and that is your budget. Here is how, step by step, with a real example.
Step 1: find the EMI you can really pay
Start with take-home pay, the money that reaches your account each month, not the gross salary on your offer letter. If both partners earn and will be co-borrowers, add both. Use only income that is steady. A yearly bonus is welcome, but don’t build an EMI on it.
Then apply a simple rule of thumb: all your EMIs together, existing and new, should stay under 40% to 50% of take-home pay. Banks use a similar test, called FOIR, and may allow more at high incomes. The lower end of the range is kinder if you have children or ageing parents to support.
| Item | Amount |
|---|---|
| Take-home pay (both earners) | ₹1,20,000 a month |
| Comfortable share for all EMIs (40%) | ₹48,000 a month |
| Less: existing car loan EMI | ₹8,000 a month |
| EMI available for the home loan | ₹40,000 a month |
Step 2: turn that EMI into a loan amount
The amount you can borrow for a given EMI depends on the rate and the tenure. Assume, for illustration only, an interest rate of 9% a year and a 20-year loan. An EMI of ₹40,000 supports a loan of about ₹44 lakh. Stretching the tenure to 25 years raises it, but you pay interest for five more years.
Don’t trust the first number you see. Run your own figures in an EMI or eligibility calculator, with your income, your existing EMIs and the rate you are likely to get.
Step 3: stress-test against a higher rate
Most home loans are floating-rate: the rate moves when the market does. If rates rise, either your EMI goes up or your loan runs longer. So check whether you could still manage if the rate were 1.5 or 2 points higher than today’s.
| Interest rate | Monthly EMI | Difference |
|---|---|---|
| 9% a year | ₹39,588 | Starting point |
| 10.5% a year | ₹43,929 | ₹4,341 more |
| 11% a year | ₹45,416 | ₹5,828 more |
If the higher EMI would still sit under your limit, you have room. If it would break your budget, borrow less, or choose a longer tenure to start with and prepay later when your income grows.
Step 4: count the money you need before the loan
A bank does not fund the whole price. Under RBI’s loan-to-value limits, the lender can finance at most 90% of the property’s value on loans up to ₹30 lakh, 80% on loans between ₹30 lakh and ₹75 lakh, and 75% above that. You pay the rest from savings, and that is only the start.
| Cost | Rough amount |
|---|---|
| Down payment (the part the bank does not fund) | ₹12,00,000 at least |
| Stamp duty and registration (5% to 8% in most states) | ₹3,00,000 to ₹4,80,000 |
| Bank processing fee, legal and valuation charges | Up to about ₹48,000 |
| Brokerage, society transfer fee, GST on under-construction homes | Depends on the deal |
| Moving, basic repairs, furnishing | Your own estimate |
What else decides how much a bank will lend
- Credit score. A score of 750 or more gets you the best terms. A lower one can shrink the amount or raise the rate.
- Age and tenure. The loan is expected to end before you retire, around 60 for salaried applicants and often 65 for self-employed ones. Starting at 45 means a shorter tenure, a bigger EMI and a smaller loan.
- Job and income stability. Salaried people with a stable employer, and self-employed people with two or three years of filed returns, are seen as safer.
- Co-applicant. A working spouse or parent adds income and raises the amount. Both of you are then responsible for the loan.
- The property. The bank values it independently and also checks the title and approvals. Lending is on its valuation, which can be lower than the price you agreed.
Five mistakes to avoid
- Stretching to the maximum eligibility because the bank allowed it.
- Forgetting stamp duty, registration and other costs, and then borrowing again for them on a personal loan.
- Counting a bonus or rental income that is not guaranteed.
- Taking the longest tenure and never prepaying, which means paying interest for decades.
- Buying before checking your credit report. A mistake on it can cost you a better rate.
The bottom line
Your affordable home is the one whose EMI fits comfortably in 40% of your take-home pay, even if rates rise, with your down payment and a cushion still in the bank. If the home you want is above that, wait, save more, or look further out. A smaller loan taken calmly is better than a bigger one taken in a hurry. If you would like to see which lenders fit your income and property, we can check before you apply.
Questions readers ask
It depends on your rate, tenure, existing EMIs, age and credit score. As a rough guide, if you keep all EMIs under about 40% to 50% of take-home pay, a lender can usually support a loan several times your yearly income. Use an eligibility calculator with your own figures for a better answer.
A 30-year loan has a smaller EMI but costs far more in interest. Many families take the longer tenure for safety and prepay when income rises. If you can comfortably afford the shorter EMI, you will pay much less overall.
Not always, but a co-applicant who earns raises the amount you are eligible for. Both are equally liable for repayment, and both can claim the tax benefits on the share they pay, subject to the rules.
Savings, yes. The down payment must come from your own funds. Provident fund withdrawals for buying a home are allowed within certain limits and conditions, so check the current rules with your PF office before counting on it.
Find out why. Common reasons are a low score, high existing EMIs, short job history, or a property that fails the bank’s checks. Fix the cause, then apply again. Avoid applying to many lenders at once, because each one adds a hard enquiry to your credit report.
