How Much House Can You Afford?
Buying a house is an emotional decision, but it must be grounded in math. "House Poor" is a term used to describe people who spend such a large portion of their income on home ownership (EMI, taxes, maintenance) that they have no money left for savings or lifestyle. This calculator helps you define a safe budget.
The 40/50 Rule (FOIR)
Banks in India use the Fixed Obligation to Income Ratio (FOIR) to decide your loan eligibility. The standard rule is:
- Total EMIs: Should not exceed 50% of your Gross Monthly Income.
- Net Affordability: If you earn ₹1 Lakh/month and already pay ₹10k for a car loan, the bank will calculate your capacity as ₹40k (50k limit - 10k existing).
Why You Should Stick to a Lower Limit
While banks may lend you up to 50% of your income, financial advisors recommend keeping your Home Loan EMI to 30% or less of your take-home pay. Why?
- Emergency Fund: You need cash flow for medical emergencies or job loss.
- Future Goals: You still need to save for retirement and children's education.
- Lifestyle Inflation: Expenses naturally rise over 20 years. A tight EMI today will feel suffocating tomorrow.
Components of Your Budget
Your affordability is made of two parts:
- Loan Eligibility: Based on your income and current interest rates.
- Down Payment: The cash savings you have right now. A larger down payment significantly increases the price range of homes you can afford without increasing your monthly burden.
Hidden Costs to Remember
Don't forget that the property price is not the final cost. You must add:
- Registration & Stamp Duty: 5-7% of the property value (paid to Govt).
- Brokerage: 1-2% fee to the real estate agent.
- Interiors: 10-15% of the cost for painting, furniture, and fittings.
Tip: Ensure you have extra cash savings for these over and above your down payment.
FAQs
- Does my spouse's income count?
- Yes, you can apply for a joint home loan. This combines both incomes, significantly increasing your eligibility and allowing you to afford a bigger house.
- How to increase eligibility?
- Clear existing loans (car, personal) before applying. This frees up your FOIR limit.