What is the feasibility of purchasing a 1 crore INR house with a take-home salary of 1,65,000 INR per month and savings of 10-15 lakhs INR in hand?

Sorry to disappoint you but at this stage it seems to be a rather tall task. You should wait and invest/build your wealth. Start investing as much as you can in MF SIPs in good 5-star rated schemes. You can wait till the age of 35–36 also. By that time, you will have a significant kitty in your portfolio and may require very little loan. You will also know whether to buy a property in the current city.

If you wish to know the long reasons why, please read on.

Remember that most banks/HFCs finance only up to 85% of the construction cost for a new apartment. For an older/second-sale apartment, this reduces to 75%. Although this is not a hard-and-fast rule, it is better not to assume that more finance will be possible.

The question is 85% of what? What does it mean by “construction cost” or “base cost”?

The cost of the house is made up of base cost, GST, 1-time maintenance fee for initial maintenance (till society is formed), water and electricity connection charges, electricity deposit, registration fee, stamp duty, etc., etc. The base cost is (saleable area in sq ft * rate per sq ft). Now assuming that the base cost is ₹90 lakhs, and this property that you intend to purchase is a new property, 85% of the base cost is ₹ 76,50,000. This means that you must pay ₹ 23,50,000 from your own sources. Since you do not have this money, it means that you cannot buy this property at the present time.

There is also the fact that banks will let you borrow in such a way that your EMI is less than 40% of your take-home net pay per month (after taxes and all other borrowing/loans deducted.) If ₹1,65,000 is your CTC/month, then you would be taking home 72% of this pay or ₹ 1,18,800 (you know what it is). This means that (and assuming no other loans) you will be allowed an EMI of 40% of net pay or ₹47,520. If that is the EMI, your max borrowing at max loan tenure period is as follows:

This means even more bad news as you will have to cough up ₹38 lakhs from your own sources. At this stage, you do not have this money.

But just for fun, let me take the best-case and most wonderful scenario: the bank will finance you 100%, i.e., ₹ 90 lakhs, ₹10 lakhs from your own pocket.

At such high borrowing, the rate of interest will be high - 9% or even more. Rates are higher when borrowing is above ₹75 lakhs. Then there is also the case that at your age you are unlikely to have a great credit history, banks are wary of lending, they will look at your job/employer & how likely you will remain employed, etc. Here is a comparison chart:


Let me assume a rate of 9%. If this is the case, your EMI options look as follows:

Since most likely, you cannot afford high EMI, you will go for a 30-year loan. It is a bad situation:

  • You are at a very high risk - jobs are not stable these days
  • You will be repaying till the age of 56 assuming that you do not square off earlier
  • The bank will recover most of the interest in the earlier years; in fact at the end of 15 years (out of 30), the bank will have recovered 65.46% of the total interest payable while you would have paid only 20.67% of your principal. Your amortization looks like this:

(ignore the year-30 values, that is a round-off error).

  • What the above chart reveals is that after the mid-term point, you are mostly repaying the principal.
  • You will have paid nearly twice as much interest as your borrowing.
  • Yes, you can prepay and finish off earlier but can you? In my honest opinion, considering that you will have a near zero balance at the start, you will marry, start a family, and will have growing expenses, you are unlikely to think of pre-payment before year 10. If you look above, at that point 46% of the interest is already paid out.

Instead, if you save invest your ₹10 lakhs in an MF as lumpsum and start a ₹40,000 per month as an MF SIP, both assumed at a reasonable YoY annuity return of 12%, after 10 years, you will have

  • ₹ 31,05,850 from the lumpsum investment
  • ₹ 92,93,500 from the SIP investment
  • These are pre-tax amounts close to ₹1,24,00,000. At 10% LTCG, you will have ₹ 1.12 Cr with you.
  • Even if the home value appreciates in 10 years, you will require less financing at this point. (At 5% annual appreciation, the ₹1 Cr home will be ₹1.63 Cr at this stage).
  • You can easily get cheaper finance of ₹50 lakhs and finish the loan in 10 years:

(RoI is 8.5% today; most likely the rate will be around 7% then; could be less also.)

  • After 10 years, you will be earning much more.

(P/s. On many of my other answers on loan and repayment, I said that the bank recovers maximum interest in the first half of the tenure. Some commented that this is not true and if it is, it is only because the principal outstanding is higher initially and interest is charged on reducing balance. The latter part is true to an extent but that is not the only reason. If EMI was really “equated”, by mid term more than nearly 50% of principal should have been repaid. The bank is more interested in their earnings which comes from the interest. So they want to recover this as far as possible to minimise risk in case of default. I hope that my chart above clears this misconception.)

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