How is Home Loan eligibility calculated on your salary

Hello, soon to be a homeowner! Each one of us has a vision of what a good home looks like. There are quite a few options for home financing such as mortgages that are available to help you. However, the truth is most likely you will get lost in the home loan process of taking out a mortgage. This is especially true when it comes to that one big question; How much mortgage can I qualify for based on my salary? fear not those who are also looking for houses! Do not be startled by this fact: It is unnecessary to be.

Do not be afraid of a fellow house hunter! You don’t have to be worried about your income and whether you will be able to get a home loan. Let us delve into the figures and see what it takes for one to qualify as well as other avenues through which one might earn extra cash. So, lean back and relax with some great tasting cuppa while we embark upon a tour through your fantasy house!

View your home loan eligibility as being that key that allows you to reach your goal of obtaining your desired loan amount. The main factor is not only the salary, but also the combination of elements. But before we dive into the specifics, let us address a common misconception: there's no secret and unique way to tell this; it's an individual and case-by-case matter. Managers of every housing finance organization and commercial bank have their own specifications, and each of your financial profiles is of vital importance to them.

 

Salary and Home Loan Amount: Understanding the Connection

The idea here is as follows: a high income would not only instill more confidence in the mind of the financial institution about your credibility to repay the money borrowed by you, but it would also give you an assurance that you can deal with it quite comfortably. As such, a potential borrower would be sanctioned a larger sum of money as a loan. The financial institution, typically a bank or an NBFC, will have some criteria to check if your income suffices to repay the amount you are asking for in the loan. You may be eligible to borrow 60 times your net monthly income for a housing loan. For example, if you earn ₹50,000 per month as your net income, then in that case, you shall get a home loan of about ₹30 lakh. Still, this multiplier is at the mercy of the lender. It may be four to six times or even higher than your take-home pay.

 

The Home Loan Eligibility Formula

Though there isn't any straitjacket formula, the following few factors are used by the lenders to determine your eligibility:

• Gross Salary: It means your salary before some of it is cut off in form of taxes and levies.

• Work Experience: The more work experience one has, the more stable the income will be  reflected to be, which in turn would make one more eligible.

• Loan-to-Value Ratio: It is the amount of loan as a percentage of the value of property. The  maximum LTV for a home loan is decided by the Reserve Bank of India and varies between  75% to 90% based on the loan amount.

Aside from that, a good credit score is important since it indicates to the creditor that you manage your finances well and thus makes you an attractive borrower in their eyes.

 

Optimizing Your Salary for Better Home Loan Eligibility

Now that you understand the connection between your salary and home loan, let us explore ways to make your salary shine for loan eligibility:

• Maintain a healthy credit score: This is key! Timely payments on existing debts and a credit card with a healthy limit but less usage can boost your score. Your CIBIL score should also be good without any faults.

• Less Debt: The less debt you have, the more of your income is available to repay the home loan. It also enables lenders to trust you, making you a more reliable borrower.

• Increase your salary (if possible): Work hard and try to get a raise or promotion. It can significantly improve your eligibility. But remember, responsible budgeting is key!

 

Beyond Salary: Exploring Additional Income Sources

Sometimes salary alone might not be enough to pay your EMIs. It is a very logical step to have a backing. Creating additional sources of your income is always a safe choice. Following are a few sources for the same.

• Rental Income: Owning a rental property can provide a steady stream of income that lenders consider when calculating eligibility.

• Investments: Interest income from fixed deposits or mutual funds can strengthen your application.

 

Conclusion

Salary is a center stage that determines home loan eligibility, but there are other actors, too. Through analyzing complementary factors, doing what you can to improve your fiscal health, and looking at extra income sources, the road to your home of dreams will be smoother and easier to traverse. Remember, research is key! Don't miss the chance to get to know the offers from various lenders; compare and pick the one that seamlessly meets your needs.

So, are you ready to turn that dream into reality? With the right knowledge and a strategic approach, you can pave the way to homeownership!

 

Read our blog - Easy ways to manage your EMIs to learn tips for efficient financial planning.