The 20/30/40 rule for buying a house
Most people ask the bank how much it will lend, then treat that number as their budget. But the bank is answering a different question. It wants to know how much you can repay. That is not the same as how much you can spend and still live comfortably.
The 20/30/40 rule is a simple set of limits. No bank enforces it. It is three limits you set for yourself.
From your own savings, not another loan. On a ₹70L flat, that is ₹14L upfront and ₹56L borrowed.
Your EMI plus maintenance and property tax. Not the EMI on its own.
Home loan, car loan, personal loan, credit card EMIs. Everything added up.
EMI means your fixed monthly loan payment. Salary here means your gross monthly salary, before tax.
How this splits your salary
The 30% and 40% limits apply to the same salary. The 10% gap between them is all the room you have for every other loan.
What price does that allow?
Here is the 30% limit turned into a flat price. Home loan at 7.5% for 20 years, with 20% paid upfront.
| Monthly salary | 30% limit | Loan | Flat price |
|---|---|---|---|
| ₹50,000 | ₹15,000 | ₹18.6L | ₹23.3L |
| ₹75,000 | ₹22,500 | ₹27.9L | ₹34.9L |
| ₹1,00,000 | ₹30,000 | ₹37.2L | ₹46.5L |
| ₹1,50,000 | ₹45,000 | ₹55.9L | ₹69.8L |
| ₹2,00,000 | ₹60,000 | ₹74.5L | ₹93.1L |
| ₹3,00,000 | ₹90,000 | ₹1.12cr | ₹1.40cr |
Look at the last column, then look at what gets advertised to people on those salaries. On ₹1 lakh a month, the rule says about ₹46 lakh. A bank will often sanction more, and a sales office will show you flats that cost much more.
Why paying 20% upfront matters
A bigger upfront payment does two useful things. You pay less interest overall. And you avoid owing more than the flat is worth if prices drop, which is what traps people who need to sell.
The interest part surprises people. Here is a ₹50 lakh loan at 7.5%:
| Loan length | EMI | Total you repay | Interest |
|---|---|---|---|
| 10 years | ₹59,351 | ₹71.2L | ₹21.2L |
| 15 years | ₹46,351 | ₹83.4L | ₹33.4L |
| 20 years | ₹40,280 | ₹96.7L | ₹46.7L |
| 30 years | ₹34,961 | ₹1.26cr | ₹75.9L |
Going from 20 years to 30 years cuts your EMI by about ₹5,300 a month. It also adds about ₹29 lakh in interest. A longer loan is not cheaper. It is the same debt spread over more years, and it costs more in total.
Three things the rule does not do
It uses your fixed salary only. Bonuses and incentives are not salary. Size the loan on what reaches your account every month.
Tax benefits do not lower your EMI. They lower your tax bill later. The full EMI still leaves your account every month.
It does not tell you whether to buy. It only caps how much. Whether buying beats renting and investing the difference is a separate question.