Owning a home is a dream nurtured by almost every individual. However, in the home buying journey, selecting a budget is the most herculean task. Thus, in order to solve this problem, CommonFloor has tried to analyse ‘how much worth house you can afford’ based on the salary you draw on an annual basis and the loan eligibility. Using our exhaustive database, one can easily find a suitable locality.
The below inferences has been derived keeping in mind four points. First, you will pay 80 per cent of the property cost as Equated Monthly Instalments (EMIs) and 20 per cent as down payment. Second, the loan tenure is for 20 years. Third, in an ideal scenario, out of your total salary, 40 per cent can be used for housing. Fourth, the interest rate on your home loan is 10 per cent.
How Much Loan am I eligible to?
Using a reverse EMI algorithm, we present you the maximum home loan eligibility.
Where: Assuming PV as the value of the property one can afford, S is the maximum monthly installment to be paid (i.e. 40% of the net income), r is the periodic interest rate divided by 100 (annual interest rate also divided by 12 in case of monthly installments), and n is the total number of payments (for a 20 year loan with monthly payments n = 20 × 12 = 240).
For instance: Assuming your net annual income is Rs 10,00,000, and maximum monthly installments affordable is Rs 33,333. Now if the interest rate on the home loan is 10 per cent (r= 0.1/12) with a tenure of 20 years (n=240 months). Thus, applying the above formula, you can afford a property worth Rs 43, 18,880.
Thumb-rule: For a quick calculation of these values, one can multiply the net annual income value with an approximate constant (4.35) to get to the worth of property one can afford.