A Financial Framework for Home Buying in 2025

Key Takeaways:

• Follow the 20/30/40 Rule for Safer Financial Planning
  20% of the home value should come from your savings as a down payment 30% of your take-home income is the max you should allocate to EMIs
  40% of your savings should remain untouched post-purchase for emergencies and life goals.
• Understand the True Cost of Homeownership
  Beyond the listed price, account for registration, stamp duty, GST, interior work, and broker/legal fees, often adding up to 10–12% extra.
• Know How Much to Save Before You Buy
  Aim to save 25–30% of the total property cost before you start house hunting. This ensures you’re ready for both the down payment and incidental expenses without taking on extra debt.
• Build Strong Loan Eligibility Before Applying
  A credit score of 750+, minimal existing EMIs, and stable income for 2+ years will improve your chances of getting a home loan with favorable terms.
• Prioritize Liquidity Over Emotional Buying
  Always maintain 6–12 months of expenses in an emergency fund even after the purchase. Avoid draining your savings entirely to own a bigger or flashier house.
• Think Long-Term, Not Just First Purchase
  Your first home doesn’t need to be forever. Buy based on your current financial reality, not future dreams. You can always upgrade once your income grows and priorities evolve.
  

Why You Need a Financial Framework Before Buying a Home

Buying a home is a milestone, but it’s also one of the biggest financial decisions you’ll ever make. If you don’t approach it with clarity and planning, you may end up with monthly EMIs that drain your savings or restrict your future flexibility.

Instead of reacting to prices, offers, or peer pressure, build a system that helps you:

• Understand what you can afford
• Make smarter loan decisions
• Maintain liquidity for emergencies
• Avoid becoming house-poor

Step 1: Know How Much You Need to Save Before Buying a Home

How much money should I save before buying a house in India?
Here’s a breakdown:

A. Down Payment

Banks usually fund 75–90% of your home’s value via a loan, depending on the loan size and your profile. The rest has to come from you.

• For properties under ₹30 lakh, banks can lend up to 90%
• For ₹30 lakh – ₹75 lakh, up to 80%
• For above ₹75 lakh, up to 75%

💡 You should ideally save at least 15–20% of the property value as a buffer for the down payment and initial expenses.

B. Stamp Duty & Registration

This adds 6–10% of the property value, depending on the state. It's a non-negotiable cost.

C. Legal, Advisory & Miscellaneous Fees

Budget for property vetting, legal checks, home inspections, and broker commissions if applicable.

Pro tip: Aim to save at least 25% of the property cost before buying to comfortably cover all of the above.

Step 2: Apply the 20/30/40 Rule for Home Buying

What is the 20/30/40 rule for buying a house? This informal budgeting rule helps you stay within your means.

• 20%: Minimum down payment from your savings
• 30%: Maximum portion of your monthly income that should go into EMIs
• 40%: Keep at least 40% of your home cost as long-term savings and investment capital

This rule isn’t rigid but offers a helpful benchmark for sustainable financial planning for buying your first home. If your EMI eats up more than 35% of your income, you're putting yourself at financial risk.

Related: Decoding Home Loan EMI

Step 3: Build Your Credit Score Before You Apply

Your credit score affects not only your loan approval but also your interest rate.

• Check your CIBIL or Experian score at least 6 months before applying
• Clear existing high-interest loans like personal or credit card debt
• Avoid multiple loan inquiries in a short span
• Pay EMIs and credit card bills on time without fail

Target score: 750+ for better approval chances and lower interest rates

Step 4: Understand Your Loan Options

It’s not just about the lowest EMI. Choosing the right type of loan and repayment schedule is crucial.

A. Fixed vs Floating Rate Loans

• Fixed rate: Safe during inflation and interest rate hikes, but usually higher upfront
• Floating rate: Cheaper initially, but may rise over time based on RBI repo rate changes

If you're planning to stay long-term and want predictability, consider fixed. If you’re confident about rising income or short-term tenure, floating may be better.

B. Loan Tenure

• Shorter tenure = higher EMI but lower total interest paid
• Longer tenure = lower EMI but more interest outgo

Use the 30% rule: your EMI should not exceed 30% of your monthly income.

Step 5: Don’t Ignore Emergency Liquidity

Home buying can drain your savings if you're not careful. Always retain at least 6–9 months of emergency funds even after your down payment.

Unexpected costs can include:

• Maintenance & repairs
• Property tax hikes
• Job loss or salary cuts
• Medical emergencies

Without liquidity, even a small crisis can derail your repayment schedule.

Step 6: Plan for Post-Purchase Expenses

The EMI is only part of the story. Once you own a home, ongoing costs kick in.

Hidden expenses most buyers forget to budget for:

• Society charges & maintenance
• Interior work and furnishings
• Property tax and home insurance
• Relocation costs
• Repairs and modifications

Add 5–10% of the property cost for these, depending on the property condition and your lifestyle.

Step 7: Factor in Life & Home Insurance

A house loan is a long-term commitment. Safeguard your family and finances with proper coverage.

• Home Insurance: Covers damage from fire, natural disasters, etc.
• Term Insurance: Ensure your family isn’t left with EMI burdens in case of your untimely death
• Loan Insurance (optional): Some lenders offer it, but compare cost vs term insurance

Legal compliance and risk mitigation are as important as the purchase itself.

Step 8: Stay Legally Compliant

Before buying, make sure:

• The property has a clear legal title
• It is approved by the relevant municipal authorities
• It follows zoning and land use norms
• It is free from litigation or encumbrance

If you’re unsure, use professional advisory services or explore data-driven project comparison reports like those offered by Brickfi to assess legal and builder credibility.

Step 9: Think Long-Term

A good financial plan accounts for your future life goals.

• Will the EMI affect your ability to save for retirement?
• Can you afford a child’s education and still repay the loan?
• Will you need to shift in the next 5–10 years due to career changes?

Home buying is not a race. Align it with your larger life strategy.

Key Tips for First-Time Home Buyers: Real Estate

1. Start early: The earlier you plan, the easier it is to accumulate the down payment without loans.
2. Don’t over borrow: Banks may offer more than you need. Stick to your budget.
3. Compare multiple loan options: Don’t settle for the first bank offer.
4. Use real estate data: Project delays, resale trends, and builder reputation matter more than brochure photos.
5. Track your spending: Use budgeting apps to monitor EMI impact on your monthly cash flow.
6. Avoid financial FOMO: Buy when you're ready, not because friends or influencers are.

Final Thoughts

Financial planning for buying your first home in India requires more than saving money. It’s about clarity, discipline, and informed decisions. The right framework helps you balance your present needs with future ambitions, while staying protected from debt traps and hidden costs.

A home should give you security, not stress, and with a system like this, it can.

FAQs

1. What is financial planning for buying your first home?

It involves budgeting, assessing your credit score, estimating down payment, selecting the right loan tenure, and ensuring liquidity for emergencies. This planning helps you avoid over-leverage and ensures sustainable home ownership.

2. What is the 20-30-40 rule for buying a house?

This rule suggests allocating your finances as follows:

• 20% for the down payment
• 30% of your income as the maximum EMI burden
• 40% of savings retained for future expenses and liquidity This framework ensures you're not financially strained after buying a house.

3. How much money should I save before buying a house in India?

You should aim to save at least 25%–30% of the property value for the down payment, registration, brokerage, and legal charges. An additional emergency fund worth 6–12 months of expenses is recommended for financial stability.

4. What is the golden rule of buying a house? The golden rule is to never

buy a home that costs more than 5x your annual income and to keep your EMI within 30% of your net monthly salary. This prevents financial stress and improves loan approval chances.

5. What are some key tips for first-time home buyers in real estate?

• Improve your credit score before applying
• Compare multiple loan offers
• Choose fixed or floating rate wisely
• Understand hidden costs
• Prioritize projects with legal clarity and timely delivery
• Maintain a liquidity buffer post-purchase