Becoming a homeowner is a proud feeling, and one that requires a lot of effort since affording a property is no small feat. Now, most salaried individuals plan on buying houses with the help of a home loan. If you are planning to do the same, it is natural to think about the loan amount a lender would be willing to approve based on your salary. This is an important question, as it will influence the amount that you will have to pay from your savings.
In order to understand the loan amount that can be approved, it is necessary to learn about the common salary slabs, which part of your salary is taken into consideration by lenders, as well as additional factors that come into the picture while determining your housing loan eligibility.
So, let’s get started!
- Understanding the salary breakup
A salary is generally stated as net, which is in-hand, or gross, which is an aggregate of basic salary, HRA (house rent allowance), medical allowance, vehicle allowance, LTA (leave travel allowance), and so on. These components are altogether known as the CTC (cost-to-company). This is however not the final amount that is considered to be your in-hand salary, as there are mandatory deductions such as Tax Deduction at Source, Employee Provident Fund (PF), Professional Tax, and so on. Now, financial institutions mostly consider your net salary while determining home loan eligibility.
- Loan amount you are eligible for
Since your repayment, capability only depends on the take-home salary and not gross, lenders mostly consider your net income that excludes the deductions. For borrowers earning a monthly income of Rs 25,000, a lender can offer a home loan of Rs 18.64 lakh. Borrowers earning Rs 50,000 and Rs 75,000 can be eligible for loan amounts of Rs 37.28 lakh and Rs 55.93 lakh respectively. Do keep in mind that each financial institution can have a different income criterion, so these numbers might change as per your lender.
- Other factors influencing home loan eligibility
There are various factors that a lender takes into consideration while setting the home loan eligibility criteria. Apart from an applicant’s income, lenders also consider their age. For instance, the age criterion for salaried employees is between 18-60 years whereas for self-employed professionals, it is 18-65 years. Lenders also consider the location of the applicant. Applicants who are residents of cities such as Mumbai, Bangalore, Delhi, Chennai, and Pune may be required to have a minimum income of Rs 20,000, but for applicants from other cities, the minimum income could be Rs 15,000. Do note that this could again differ from lender to lender.
Before you apply for home loan, it is advisable to make use of a home loan eligibility calculator, which will help in understanding the loan amount a lender can approve. This will help in avoiding an application rejection, which is important, as multiple rejections are a negative sign for financial institutions.