Can you buy a home on a Rs 30,000 salary? How EMI and down payment add up

Everyone wants a home of their own, but many wonder whether that dream can come true on a low salary. Here is a worked example of how the EMI and down payment can be calculated for someone earning Rs 30,000 a month.

Start with the loan instalment. On a home loan of Rs 10 lakh, the EMI could be around Rs 10,000 a month, depending on the interest rate and the loan tenure. In practice, the instalment will depend on the bank's interest rate, the tenure and other terms. It is therefore important to decide, before taking a loan, whether enough money will be left for household expenses after the EMI is paid.

Take the Rs 30,000 salary. Suppose rent or housing and grocery costs are Rs 8,000, electricity, mobile and other bills Rs 3,000, travel Rs 4,000 and other family expenses Rs 5,000. Total expenses come to Rs 20,000, leaving Rs 10,000.

This does not mean the entire amount should go into the EMI. Money is also needed for sudden expenses and emergencies. The EMI should therefore be fixed on the basis of actual expenses.

Now consider the price of the house. Suppose a house priced at Rs 15 lakh is chosen and the bank sanctions a home loan of Rs 12 lakh. The remaining Rs 3 lakh has to be paid from one's own pocket. This is the down payment. A separate fund may also be needed for registration, stamp duty and other essential costs. Arranging the loan alone is not enough; savings must also be ready.

How can these savings be built? Saving Rs 5,000 a month gives Rs 60,000 in one year, Rs 1.20 lakh in two years and Rs 1.80 lakh in three years. This calculation does not count any interest or investment returns. Reaching the Rs 3 lakh down payment target may take longer or require additional savings.

On what to keep in mind when taking a home loan, experts advise comparing the interest rates, processing fees and repayment terms of different banks. A decision should not be made on a low interest rate alone. It can also help to keep one's job, income and the documents required by the bank in order.