Purchasing a home is one of the most important and costly decisions most people face. But how much is too much in terms of homeownership? Sarthak Ahuja, an investment banker, believes that most Indians are answering the question incorrectly.
Instead of asking how much loan you can get, he believes the real question is how much house you can afford without becoming financially stressed.
Key Highlights
- Limit home price to 5× annual take-home income; keep monthly EMI under 35% of net income.
- Save 50% of home value before purchase; allocate 35% to down payment, 15% to emergency funds.
Ahuja imposes six strict rules for anyone purchasing property without inheritance or family support.
First, the house you intend to purchase should not cost more than five times your annual take-home pay. "If you extend beyond this upper limit, you unlock a high risk of falling into a debt trap," says Ahuja.
Second, your monthly EMI should not exceed 35% of your net in-hand household income. Anything beyond that provides little room for emergencies or lifestyle changes. That is where things start to unravel.
Third, you should already have savings worth at least half the price of the home you intend to purchase. That includes not only the down payment, but also maintaining financial stability after the purchase.
Fourth, Ahuja recommends a 35:15 split of the savings. Your down payment is 35% of the house's value, with the remaining 15% kept safe as liquid assets for emergencies. "That emergency fund is non-negotiable," he announces.
Fifth, before even considering a home loan, you should have strong financial protection in place. "Have a medical insurance of Rs 50 lakh minimum for your family members, and a term life insurance which is at least equal to the value of the house," according to Ahuja.
Sixth, only purchase a home if you intend to live in it for at least five years. "Buying is not worth it if you might relocate in two or three years," according to him. "With transaction costs, interest payments, and unpredictable price increases, short-term homeownership makes little financial sense."
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He explains it with an example. If you want to buy a Rs 1 crore home, your household income should be at least Rs 25 lakh per year, with Rs 50 lakh already saved. Rs 35 lakh should go toward the down payment, while Rs 15 lakh should be set aside as a rainy-day fund. In addition, your insurance should be in order.
What if that's not possible? "Stay on rent till you upskill and begin earning more," says the instructor. For those who insist on owning something, he recommends looking at low-cost options in Tier 2 cities. These are places where one could retire in the future, even if they are not practical right now."
Ahuja's advice may appear conservative, particularly in an age when buying young is frequently glorified. But his point is sharp. Real financial freedom does not come with owning a home. It comes from embracing it without fear.
