Karan and Kiran (an illustrative profile), both 31, rent a two-bedroom flat in Wakad, Pune, for ₹22,000 a month. Their combined take-home pay is ₹1.6 lakh a month. They have found a flat they like for ₹80 lakh, and a builder's representative says, "Just 20% down and the bank will do the rest."
It is rarely that simple. The cash needed is larger than 20%, the EMI runs for two decades, and the decision affects every other goal they have. This chapter works through the real numbers.
In this chapter
- The full cash cost of buying, beyond the down payment
- How to judge an affordable EMI, and what a loan really costs
- How to think about renting versus buying honestly
- The basic tax treatment of a home loan
Why the down payment is more than 20%
RBI rules cap the loan-to-value ratio, the share of a home's value a bank can lend. It is up to 90% for loans up to ₹30 lakh, 80% for loans above ₹30 lakh and up to ₹75 lakh, and 75% above that. Banks also usually exclude stamp duty and registration from the value they lend against, so you pay those yourself.
In Pune, stamp duty plus metro cess and local levies typically come to about 6 to 7% of the property value, and registration is 1%, capped at ₹30,000. Add interiors, furniture, legal checks and moving, and many buyers find they have underestimated by ₹5 to 10 lakh.
Worked example: Karan and Kiran's cash and EMI
Assumptions: flat price ₹80 lakh; stamp duty and levies 7%; registration ₹30,000; interiors ₹5 lakh; other costs ₹1 lakh; home loan rate 8.5% for 20 years (illustrative; actual rates depend on the lender and your profile, and the RBI repo rate is 5.50% after October 2026).
- Down payment: 20% of ₹80 lakh = ₹16 lakh.
- Stamp duty and levies: 7% of ₹80 lakh = ₹5.6 lakh. Registration: ₹0.3 lakh.
- Interiors and other costs: ₹6 lakh.
- Total cash needed: 16 + 5.6 + 0.3 + 6 ≈ ₹27.9 lakh, not ₹16 lakh.
- Loan: ₹64 lakh. EMI at 8.5% for 20 years ≈ ₹55,500 a month.
- Affordability test: ₹55,500 is about 35% of their ₹1.6 lakh take-home. It is at the edge of the guideline, workable only if both incomes are stable and other goals are already funded.
- Total interest over 20 years: about ₹69 lakh, more than the loan itself.
A small habit changes this sharply. If they raise the EMI by 5% each year as salaries rise, the same loan is repaid in about 147 months, roughly 12 years and 3 months, instead of 20 years. Most home loans are floating rate, so EMIs or tenures also change when rates move.
It is also worth testing an alternative. A ₹65 lakh flat on the same terms needs about ₹23.9 lakh of cash (₹13 lakh down payment, about ₹4.6 lakh in stamp duty and levies, registration and ₹6 lakh for interiors and other costs) and a ₹52 lakh loan with an EMI of about ₹45,100, or 28% of take-home pay. That leaves roughly ₹10,000 more each month for retirement and their other goals. Neither choice is wrong, but the trade-off should be seen in rupees before signing.
| Loan amount | Rate | Tenure | Monthly EMI | Take-home needed at 35% | Total interest |
|---|---|---|---|---|---|
| ₹30 lakh | 8.5% | 20 years | about ₹26,000 | about ₹74,000 | about ₹32 lakh |
| ₹50 lakh | 8.5% | 20 years | about ₹43,400 | about ₹1.24 lakh | about ₹54 lakh |
| ₹75 lakh | 8.5% | 20 years | about ₹65,100 | about ₹1.86 lakh | about ₹81 lakh |
The down payment itself is a short-term goal, so the money for it belongs in safe, liquid debt, not equity, once you are within two to three years of buying.
Rent vs buy: thinking it through
In large Indian cities, the annual rent on a home is often only about 2 to 3% of its price. On an ₹80 lakh flat, 2.5% is about ₹16,700 a month, much less than a ₹55,500 EMI, though part of the EMI is repaying principal, which builds your ownership. Purely on numbers, renting and investing the difference can sometimes come out ahead, especially if you may move cities.
| Factor | Buying | Renting |
|---|---|---|
| Monthly outflow | EMI plus maintenance and property tax | Rent, usually rising every 11 months to a few years |
| Upfront cash | Down payment, stamp duty, interiors | Security deposit only |
| Flexibility | Hard to move quickly; selling takes time and costs money | Easy to move for a job or school |
| Security | Stable home; no landlord risk | Possible forced moves |
| In retirement | A paid-off home lowers living costs | Rent continues for life |
Buying wins on stability, freedom to make the home your own and, once the loan is repaid, much lower living costs in retirement. Those are real benefits, but they are partly lifestyle choices, and it helps to see them that way.
Home loan tax basics
For a self-occupied home, the benefits apply mainly under the old regime: interest up to ₹2 lakh a year is deductible, and principal repayment counts within the ₹1.5 lakh deduction limit, along with stamp duty and registration in the year of purchase. The new regime does not allow these deductions for a self-occupied home. Section numbers changed under the Income-tax Act, 2025, so check current references when filing.
Common mistakes to avoid
- Counting only the down payment. Stamp duty, registration and interiors can add ₹10 lakh or more.
- Stretching to the bank's maximum loan. Banks approve what you can repay, not what leaves room for your other goals.
- Emptying the emergency fund for the purchase. The first year of ownership often brings unexpected costs.
- Stopping retirement SIPs to pay the EMI. Years of lost compounding are hard to make up later.
Try this yourself: Price one home you are considering. Add 20% down payment, about 7% for stamp duty and levies, registration and ₹5 lakh for interiors. Then work out the EMI on the rest and divide it by your take-home pay. If the answer is above 40%, consider a smaller home, a larger down payment or a later date.
Frequently asked questions
How much home loan can I afford on my salary?
A practical guide is to keep all EMIs, including car and personal loans, under about 35 to 40% of take-home pay. Banks may lend more, but that can squeeze savings for retirement and education.
Is it better to prepay a home loan or invest?
It depends on the loan rate, your tax regime and how much risk you can take. Prepaying gives a certain saving equal to the loan rate; investing in equity may earn more but is uncertain. Many families do some of both.
How much down payment should I save before buying a house?
Plan for at least 20 to 25% of the price, plus about 7 to 8% more for stamp duty, registration and levies in a city like Pune, plus interiors. Keep your emergency fund separate; it should still be intact after the purchase.
Can I claim home loan interest under the new tax regime?
Not for a self-occupied home. The interest and principal deductions apply under the old regime. Rules differ for let-out property, so check before filing.
For a side-by-side analysis, read real estate vs mutual funds. The Money n Wealth team can help you compare home loan options through its loans desk.