Taking A Home Loan? How Much Monthly Income Should You Spend

Buying a home is likely to be one of the biggest financial investments we will make in our lifetimes, and the aid of a home loan proves to be hugely beneficial. However, most home loans span across years, and often even decades. It is most important to not let the mortgage feel like a burden so that you have enough money to spend on other things even as you continue to pay off the loan.


Here are some guidelines on how much monthly income you should spend on a home loan.


1. Calculate the total monthly expenditure on the home loan:

Keep in mind that paying off a home loan entails more than just the EMI. As a homeowner, you will also have to pay a sum of money towards home insurance and property tax. Don’t forget to account for the varying interest rate on the home loan, which will add to the monthly expenditure. It is important to know exactly how much you will be spending towards your home purchase each month to then budget your income accordingly.


2. Enquire about the legal limits on lenders:

Lending companies will first want to assess your likelihood to pay off the loan. This will be based on your monthly income, credit score, and other financial records. Many lending companies will not allow you to spend more than a fixed percentage of your monthly income on the loan, so it is essential to enquire that you’re going for a loan that is tailored to your requirements and budget restrictions.


3. Budget your monthly income:

As a rule of thumb, you should spend no more than 28 percent of your monthly income towards repaying the home loan. It is a good idea to make a larger down payment (of about 20 percent) on the sale price of the home in order to ease the burden of the loan. In the ideal scenario, your debt-to-income ratio should not exceed 35 percent. Budgeting your monthly income while accounting for all kinds of expenses—both big and small—is a good place to start.


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