Creating a financial plan before buying a home is like designing a blueprint for the house. First time home buying with a right plan keeps you away from financial troubles and stress. The 3/20/30/40 rule is for first-time home buyers. Here’s how we know how it works: Now let’s understand this with an example… Don’t buy a house more than 3 times your annual income: The price of the house should not be more than 3 times your annual income. That means, if you earn Rs 12 lakh annually then prepare to buy a house worth up to Rs 36 lakh. 20-Year Loan: Take a loan for a tenure of 20 years or less. You’ll pay off the loan faster and save a huge amount on interest over time. 30% EMI: You should ensure that the EMI of your new home does not exceed 30% of your monthly income. Suppose you earn Rs 1 lakh every month, then EMI should not be more than Rs 30 thousand. With this you will be able to manage your remaining expenses. 40% down payment: You should aim for a down payment of at least 40% of the cost of the home. If you plan to buy a house worth Rs 50 lakh then you need to save 40% down payment, which is ₹20 lakh. Saving this large amount may take some time, but it can reduce your interest burden. Many banks including SBI are giving home loans at less than 8% interest. Many other banks including SBI, Union Bank of India and Central Bank of India are giving home loans at less than 8% interest. Home loan interest rate in Bank of India starts from 7.80%. Whereas SBI interest rate starts from 7.25%.
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Prepare to buy a house by following the 3/20/30/40 rule: Do not buy a house more than 3 times the annual income, understand its complete mathematics.
