When should you buy a house? Signs you're ready

You are ready to buy a house when your numbers work without stretching. Your income is steady, and the down payment and the costs on top are saved. Your emergency money stays untouched. The EMI fits next to what you already owe. This page walks through each of those, so you can check them against your own figures.

Two terms first. A down payment is the part of the price you pay from your own pocket; the lender covers the rest with a home loan. An EMI (equated monthly instalment) is the fixed amount you pay each month, covering interest and part of the loan.

How do you know you are ready to buy a house?

You are ready when a few things are true together, not when one of them is. Here is the readiness check in short:

• Your income is steady enough to carry an EMI for years.
• You have saved the down payment and the costs that come on top of it.
• Your emergency money is still there after you pay for both.
• The EMI fits alongside your other debts, and your repayment record is clean.
• You expect to live in the home for a good while.

None of these depends on the market. Each one depends on you. The sections below take them one at a time.

Have you saved enough for the down payment and the costs on top?

A bank or housing finance company can lend only part of a home's value, and RBI sets that ceiling by loan size. It is 90% on loans of ₹30 lakh or less, 80% above ₹30 lakh up to ₹75 lakh, and 75% above ₹75 lakh. The rest of the price is yours.

There is a second catch. Stamp duty and registration do not count as part of the price for this purpose, unless the home costs ₹10 lakh or less. The lender will not finance them, so you pay them on top of the down payment.

Take Arjun, who is eyeing a ₹55,00,000 flat. At that size the loan sits above ₹30 lakh and up to ₹75 lakh, so a lender can offer at most 80%, or ₹44,00,000. He needs at least ₹11,00,000 of his own. Stamp duty and registration come in addition.

Stamp duty is a state tax paid when a property is bought, and registration is the charge to record the sale with the state. Both are set by each state and differ from state to state, so check your state's registration department for the current rate. Additional charges when buying a house goes through them, and Is buying a house really an investment? has the full table of loan bands.

One more cost shows up at the sale. When the price or the stamp duty value is ₹50 lakh or more, the buyer deducts 1% of whichever is higher as TDS (tax deducted at source). The stamp duty value is the property's value as the state fixes it, such as the guidance value or ready reckoner rate. Assuming that value is not above Arjun's price, the TDS is ₹55,000 out of the ₹55,00,000 he pays. It is part of the price, not an extra bill.

If your down payment is still some way off, How to save for a big purchase like a car or a house covers building it up.

Will you still have emergency money after you buy?

Your purchase should leave your emergency money alone. A new home brings new bills, and the EMI starts soon after the loan is paid out. Emergency money is what you keep aside for sudden costs such as a job loss or a hospital bill.

Where to keep your emergency savings puts it at three to six months of expenses. Say Arjun's household spends ₹45,000 a month. Three to six months of that is ₹1,35,000 to ₹2,70,000. That money should still be there after the down payment, the stamp duty and registration, and the other costs of the move.

If paying for the house would eat into it, that is one of the checks failing.

Is your income steady enough for an EMI?

An EMI runs for many years and does not pause when your income dips, so steadiness matters as much as size. A freelancer or a business owner may see big months and thin ones, and the EMI is due in both.

How much EMI fits your budget is its own question. Home loan EMI: how it is worked out and how much you can afford takes it step by step. You can also try different loan amounts in the home loan calculator.

If your income moves around, ask whether the EMI would still fit in your thinnest month, not your best one.

Are your other debts and your credit record in order?

Lenders look at what you already owe and at how you have repaid it. A car loan, a personal loan or card balances all compete with the new EMI for the same monthly income.

A credit score is a three-digit number, from 300 to 900, that a credit bureau works out from your credit report. A credit bureau is a company registered with RBI that keeps credit records. Each lender decides what score it will accept, so there is no single number to aim for. Home loan eligibility: how lenders decide and how to raise it explains how the score fits into a home loan decision.

If costly debt is already weighing on you, What is a debt trap, and how do you get out of one? covers the way out.

Do you plan to stay long enough?

Buying makes most sense when you expect to live in the home for years. The reason is the cost of getting in. Stamp duty, registration and the other purchase costs are paid once, and the bank does not finance them. If you move again soon, you pay them all over again on the next home.

Think about your own situation. A transferable government or bank job can move you across states. A growing family may outgrow a one-bedroom flat in Mumbai or Pune. Parents may need you closer to them. None of this gives you a number of years to wait. It is only a reason to ask the question honestly before signing.

Should you buy now or wait?

No one can tell you whether prices or interest rates will rise or fall, so the useful question is whether your own numbers work today. Here is what waiting changes, and what it does not.

If you wait, you save more, so the down payment grows and the loan you need shrinks. Rent continues in the meantime. Prices and rates may move either way while you wait, and nobody can say which way.

Should you buy at all, or rent and invest the difference? That comparison has its own page, with worked figures: Is buying a house really an investment?. Come back here once you know you want to own.

Should you use all your savings for the down payment or borrow more?

This is a trade-off, and the answer depends on your situation. Putting in more of your own money means a smaller loan and less interest over the years. Keeping some savings back protects your emergency money and leaves cash for the costs on top, which the lender will not finance.

One rule matters here. If you hold a floating-rate loan as an individual, taken for a non-business purpose, an RBI-regulated lender cannot charge you for prepaying it, however old the loan. A floating rate is an interest rate that can change during the loan. So money you keep now can go into the loan later. How to pay off your home loan faster explains how.

Some people also look at their provident fund. EPF is the Employees' Provident Fund, the retirement account salaried workers and their employers pay into each month. EPF rules allow a partial withdrawal for buying a flat or house, subject to conditions. PF withdrawal rules lists them.

What should you do once you are ready?

Once the numbers work, the next job is the application. How to apply for a home loan takes you through the documents and steps. Before signing anything, read Home loan mistakes to avoid.

If one of the checks above fails, that tells you what to work on first.