Buying Your First Home: A Complete Financial Guide from Loan to Down Payment

Buying your first home is more than just a financial transaction; it’s a huge emotional milestone. It’s the dream of having a place to call your own, to build a life, and to create memories.

But in the midst of this excitement, it’s easy to get overwhelmed by the financial maze. How much can you afford? What is a down payment? How do home loans work?

At Indira J Udani Finserve LLP, we believe that with the right plan, this dream is well within your reach. Here is our complete financial guide to navigating your first home purchase.

Step 1: Ask “How Much House Can I Actually Afford?”

This is the most critical first step. Your affordability isn’t just about the home loan the bank is willing to give you; it’s about what you can comfortably repay without sacrificing your other financial goals (like investing for retirement or your child’s education).

Here are two golden rules:

The 20% Down Payment Rule: You should aim to have at least 20% of the home’s value saved up as a down payment. The bank will typically only finance 80% (or sometimes 90%) of the property value.
The 40% EMI Rule: Your total monthly EMIs (including your new home loan, car loan, personal loans, etc.) should not exceed 40-50% of your take-home monthly income. If your EMI takes up 60-70% of your salary, you will be “house-rich but cash-poor,” struggling to manage daily expenses and save for the future.

Step 2: Plan for the “Hidden Costs” (Beyond the Down Payment)

Your 20% down payment isn’t the only cash you’ll need upfront. This is a trap many first-time buyers fall into. You must also budget for:

Stamp Duty & Registration: This is a significant government tax, varying by state, but it can be anywhere from 5% to 8% of the property’s value.
GST: If you are buying an under-construction property, you will have to pay Goods and Services Tax (GST).
Interior & Furnishing Costs: Your new home will need furniture, paint, and fixtures. This can easily add up to several lakhs.
Moving Costs: Don’t forget the simple cost of hiring packers and movers.
Miscellaneous: Brokerage fees (if any), loan processing fees, etc.

Rule of Thumb: Budget for an additional 10-15% of your property’s value to cover all these “hidden” costs.

Step 3: Start Your “Home Down Payment” Fund

Once you have your target (e.g., 20% down payment + 10% for other costs), how do you save for it?

If your goal is 1-3 years away: Don’t risk this money in the stock market. A short-term market crash could delay your purchase. Stick to safer options like Fixed Deposits or Debt Mutual Funds.
If your goal is 3-5+ years away: You can afford to take a little more risk. Consider Hybrid Mutual Funds or a small allocation to Equity Mutual Funds via a SIP (Systematic Investment Plan) to help your savings grow faster than inflation.

Step 4: Get Your Loan in Order (Before You Shop)

Before you start shortlisting properties, get your home loan eligibility in order.

Check Your CIBIL Score: Your credit score (ideally 750+) is the most important factor in getting a loan approved and securing a good interest rate. If your score is low, spend 6-12 months improving it before you apply.
Get Pre-Approved: Talk to a few banks or a loan aggregator to get a “pre-approval” letter. This tells you the exact loan amount you are eligible for, giving you a clear, realistic budget for your house hunt.
Fixed vs. Floating Rate:
- Floating Rate: The interest rate changes based on the RBI’s repo rate. It’s generally lower to start with and is recommended for most borrowers.
- Fixed Rate: The rate is locked in for a set period (e.g., 5-10 years). It gives you predictability but usually comes at a slightly higher cost.

Step 5: Don’t Forget Your Financial Safety Net

You’re about to take on the biggest financial liability of your life. You must protect it and your family.

Home Loan Insurance (MRTA): Many lenders will offer a “Mortgage Reducing Term Assurance.” This policy pays off the outstanding loan amount to the bank if something happens to you. This is crucial—it ensures your family isn’t burdened with the EMI and the grief of losing you.
Your Personal Term Insurance: Your regular term life insurance should also be large enough to cover the home loan, in addition to your family’s daily expenses.
Your Emergency Fund: Now, more than ever, you need a robust emergency fund. With a mandatory EMI to pay, you cannot afford a job loss or pay cut to derail your finances.

Buying a home is a marathon, not a sprint. It requires patience, discipline, and a solid financial plan.

It’s a wonderful goal, and we at Indira J Udani Finserve LLP can help you build a structured savings and investment plan to make your dream of a first home a reality.