Calculate How Much Home Loan You Can Afford
Once you have picked up a location and the type of house that will be best suited for you, it's time to do something which is less fun and more logic. Before you start shortlisting properties for making the purchase, it is imperative to assess your budget and figure out how much home loan you can afford. While many people would ask why there is a need for you to calculate this when the bank would do it for free but the truth is banks and other financial institutions do not factor in the other expenses that you have to bear apart from monthly instalments. This not only includes the fixed debts that are part of your monthly outflow but expenditure over basic requirements.
Follow these steps to calculate the amount of home loan you can afford-
Estimate your take-home salary
Here take-home salary implies the amount mentioned on your paycheck after deduction of all types of taxes etc. This is the amount you have to spend on monthly expenses. Therefore, ask your HR department or check your salary receipt to get the exact figure right. For self-employed individuals, calculate on the basis of IT-returns you file or just factor in your monthly liabilities (office expenses, salary bills, and taxes) and consider the remaining amount as your income.
List out your monthly expenses
This list includes expenditure on your basic necessities and bills that you have to pay every month- grocery, electricity, phone, credit card bills, medical, EMIs to be paid, school fees, insurance premiums etc. are few of such expenses. You can also include shopping bills which are totally optional expenses but should find a mention off and on. Apart from this, also factor in necessary and flexible expenses which may or may not be included in the monthly budget but needs monetary assistance.
Make a checklist of expenses you need to bear once you own a home
Owning a home would bring a number of expenses. To start with, new furniture and interiors will make a major impact on your budget. Adding further, monthly maintenance cost would be an extra burden on you apart from property tax and minor wear and tear that will be your responsibility from now on. Electrical fittings, plumbing, water bill, landscaping and upkeep of indoor common spaces are other expenses that will be a new addition to your list.
Make a checklist of expenses you will get rid of once you own a home
Shifting close to your office will reduce your travel expenses. Similarly, if you are ready to give up on your frequent outings and parties, you can add the average amount being saved in this list. However, do not make forced commitments as this will disturb your monthly budget.
Calculate the amount you will be left with after the expenses
Once you have figured out the total cost you are going to save and spend from your monthly salary, you will be able to know how much amount you can spend on your monthly instalments to repay your loan. Also, make sure you have extra funds left for emergency situations which can come unannounced and are non-negotiable.
Figure out the cost of the house you can afford
As now you have calculated the total amount left with you, assess the loan amount you can afford through this EMI calculator. You can adjust the loan tenure, the rate of interest being offered and the down payment, you are planning to pay upfront.