Buying a home is one of the biggest financial decisions you will ever make. For most people, purchasing a house requires taking a home loan. But before applying, the most important question to ask is:
👉 How much home loan can I afford?
If you borrow too little, you might not be able to buy your dream home. If you borrow too much, you could struggle to pay EMIs every month and risk financial stress. In this blog, we’ll provide a simple guide to calculating home loan affordability so that you can buy your house with confidence and peace of mind.
Why Home Loan Affordability Matters
Many home buyers look at the maximum loan amount banks are willing to offer and assume that’s what they should borrow. But banks calculate eligibility based on income and risk factors – not necessarily what’s comfortable for you.
Borrowing beyond your means can lead to:
- High EMI burden every month
- Reduced ability to save for future goals
- Difficulty handling emergencies
- Increased risk of default
That’s why calculating affordability from your side is as important as checking bank eligibility.
Step 1: Understand the 30-40% EMI Rule
A golden rule in personal finance is:
💡 Your total EMIs should not exceed 30–40% of your monthly income.
For example:
- Monthly income = ₹60,000
- 40% = ₹24,000
👉 Your home loan EMI should ideally stay below ₹24,000.
This ensures that you have enough money left for living expenses, savings, and emergencies.
Step 2: Use an EMI Calculator
Before applying for a loan, use a Home Loan EMI Calculator. Most banks and financial institutions provide free online calculators.
The EMI is calculated using three main factors:
- Loan Amount – How much you borrow
- Interest Rate – Typically between 8%–10% in India (varies by bank and profile)
- Loan Tenure – Usually 10–30 years
Example:
- Loan amount: ₹30 lakhs
- Interest rate: 8.5%
- Tenure: 20 years
Your EMI ≈ ₹26,000 per month.
If your income is ₹75,000/month, this is affordable (≈35%). If your income is ₹50,000/month, this EMI would be too high (≈52%).
👉 This shows why calculators are so important before borrowing.
Step 3: Factor in Down Payment
In India, most banks finance 75%–90% of the property value depending on the loan size. The rest has to be paid by you as a down payment.
Example:
- Property price: ₹50 lakhs
- Bank loan: ₹40 lakhs (80%)
- Down payment: ₹10 lakhs (20%)
💡 Always plan your savings for the down payment along with registration charges, stamp duty, and other fees.
Step 4: Consider Your Fixed Monthly Expenses
When calculating affordability, don’t just look at income. Subtract your fixed expenses first:
- Rent (if any before shifting)
- School/college fees
- Insurance premiums
- Utility bills
- Other loan EMIs (car loan, personal loan, etc.)
- Household expenses
Only after deducting these should you check how much EMI you can comfortably pay.
Step 5: Check Your CIBIL Score
Banks in India check your CIBIL score (credit score) before approving a home loan.
- 750+ score = High chances of approval & better interest rates
- 650–750 score = Approval possible but may face higher interest rates
- Below 650 = Chances of rejection are high
💡 Improving your credit score before applying can increase affordability by reducing your interest rate. Even a 0.5% lower interest can save you lakhs over the tenure.
Step 6: Think Long-Term
A home loan is a long-term commitment (15–30 years). You must consider:
- Future income growth (promotions, business profits, etc.)
- Future expenses (children’s education, healthcare, retirement planning)
- Interest rate changes (floating rates can go up)
👉 Don’t just borrow based on today’s comfort. Think about the next 10–20 years.
How Banks Calculate Your Home Loan Eligibility
Banks in India use the FOIR (Fixed Obligation to Income Ratio) method.
Formula:
FOIR = (All EMIs + proposed home loan EMI) ÷ Net Monthly Income
- If FOIR ≤ 40–50% → Loan is approved
- If FOIR > 50% → Loan may be reduced or rejected
Example of Home Loan Affordability
Let’s take two cases:
Case 1: Middle Income
- Monthly income: ₹60,000
- Existing EMI: ₹5,000
- Max affordable EMI = 40% of 60,000 = ₹24,000
- Balance EMI capacity = ₹19,000
At 8.5% interest for 20 years, ₹19,000 EMI ≈ ₹22 lakhs loan.
Case 2: Higher Income
- Monthly income: ₹1,20,000
- No existing EMIs
- Max affordable EMI = ₹48,000
- Loan eligibility at 8.5% for 20 years ≈ ₹55 lakhs
👉 This shows how income and expenses impact affordability.
Tips to Increase Your Home Loan Affordability
- Add a Co-Applicant – Adding spouse or parent’s income increases eligibility.
- Improve CIBIL Score – Pay dues on time to qualify for lower interest.
- Choose Longer Tenure – Lower EMI makes it easier to afford (though interest paid is more).
- Prepay Other Loans – Clearing small EMIs (like personal loan, credit card dues) boosts your FOIR.
- Save for Higher Down Payment – Borrow less, reduce EMI burden.
FAQs on Home Loan Affordability
Q1: How much home loan can I get on ₹50,000 salary?
Usually ₹20–22 lakhs for 20 years, depending on expenses and credit score.
Q2: Is it better to take the maximum loan offered by the bank?
Not always. Always borrow what you can comfortably repay, not just what you’re eligible for.
Q3: Should I go for a shorter tenure to repay quickly?
Yes, if you can afford higher EMIs. Shorter tenure reduces total interest paid.
Q4: How does age affect home loan affordability?
Younger applicants (25–35 years) can get longer tenure and higher eligibility, while older applicants may get reduced tenure.
Q5: Can I change my EMI later?
Yes, through loan refinancing, prepayment, or tenure extension, depending on your bank.
Final Thoughts
Calculating how much home loan you can afford is the first and most important step before buying a house. The general rule is to keep EMIs within 30–40% of your monthly income, but you should also consider expenses, savings goals, and future commitments.
At Wealth Crafts Solution, we help you:
- Find the right home loan plan
- Compare banks for the lowest interest rates
- Maximize your loan eligibility
- Guide you through paperwork & approval
🏡 Ready to know exactly how much home loan you can afford?
👉 Contact Wealth Crafts Solution today for a free consultation.