Purchasing a home is an aspiration for many. However, with real estate prices on the rise every year, most people planning to buy a house plan to fund the purchase with a home loan. The amount of a home loan influences the property one selects to buy. That is why salaried individuals have a common question: “how much home loan can I get on my salary?”
A home loan applicant’s monthly salary is one of the crucial factors determining their loan eligibility. However, several other parameters come into play along with salary. Let’s learn more about home loan eligibility and how the salary affects it.
Know Your Salary
Lending institutions consider an individual’s net salary that they get in hand each month. It includes their basic salary, medical, leave travel, house rent, and other allowances. Lending institutions do not consider medical, leave travel, and house rent allowances, as the applicants use them for specific purposes. Professional tax, TDS, and EPF are also extra line items that the employees do not get in hand. So, they deduct these allowances when they check home loan eligibility for an applicant. Only the amount that is finally credited to the applicant’s bank account is considered.
Importance of Salary for Home Loan Approvals
When an individual applies for a home loan, the lending institutions consider their monthly or annual income to determine repayment capacity. The minimum income required for a loan varies between lending institutions. So, checking the particular lending institution’s eligibility criterion is essential before applying.
Home loan applicants must have a stable income source. For salaried employees, they must be working in a multinational company, listed public limited company, government organization, private limited company, a proprietorship firm, held or unlisted company, or a partnership firm. Self-employed professionals, chartered accountants, architects, and doctors are also eligible. The higher they earn, the higher the loan amount they can apply for. Therefore, income is a crucial parameter based on which the lending institutions determine an applicant’s loan amount and interest rate.
Factors Affecting Home Loan Eligibility
Although salary is an essential parameter to see how much home loan can I get on my salary, several other factors play a crucial role. These include the following:
Age: Home loans are long-term loans that last for several years. Lending institutions prefer applicants in their prime earning years instead of being at the beginning or end of their careers. That is why they set an age limit for home loan applicants. For instance, those nearing their retirement age may qualify for a lower home loan amount than a younger individual.
Employment: Those working in a reputed organisation have a better chance of getting a high loan amount. A stable job assures regular income, giving confidence for timely EMI payments. Similarly, the applicant’s work experience matters for income stability and works as a positive point for the home loan amount.
Credit Rating: An applicant’s past payment record is an essential factor in determining eligibility. Even if they earn a handsome salary, they may not get a loan if their credit rating is low. Generally, lending institutions prefer individuals with a credit score of 750 or above and approve a higher loan amount for them.
DTI Ratio: Lending institutions determine a person’s home loan eligibility after checking their income concerning existing financial obligations. They do this to ensure that the applicant is not overburdened with loans and can regularly pay EMIs. Ideally, they should not spend more than 50% of their net income on their current financial obligations.
Property’s Price: Home loan lending institutions lend up to 90% of the property’s cost. So, the loan amount one is eligible for depends on the property’s price.
How Does a Home Loan Eligibility Calculator Help?
A home loan eligibility calculator is a convenient online tool that allows an individual to check home loan eligibility. They may visit a home loan lending institution’s website, find their eligibility calculator, and enter details like income, financial obligations, property market value, etc. The tool displays the loan amount they qualify for based on the provided details.
Those who cannot find a lending institution offering an adequate loan must consider improving their loan eligibility by applying for a lower loan amount, finding a lending institution with low salary requirements, opting for a longer repayment tenure, and maintaining a high credit score. Alternatively, they can add a close family member with a good stable income and credit score as a co-applicant. After knowing the maximum loan eligibility, plan the application carefully and get the funds when needed.