Buying a house against a home loan is one of the biggest decisions an adult makes in their entire life. It is no surprise then that presently there are over 20000 banks and financial institutions in India. The average mobile user receives anywhere between 5-10 SMSes or emails about banks, credit cards, and home loans on a daily basis. But when you actually go looking for a home loan, you realize it is not as easy as it looks. A lot of time is spent looking through plans and interest rates, and then re-planning. The main reason for this disorganization is a lack of information and consideration of various factors.
The two main financing options for majority of the population are:
- Personal savings till the time of buying the house
- A home loan from a bank or other financial institution
Not many people have enough savings to be able to finance 100% of their entire house. So you end up taking a loan for a certain percentage of the loan. As per the norms and regulations established by the RBI, the applicant must contribute atleast 20% of the cost of the price of the property applied for. This means the banks or financial institutions cannot provide only 80% of the purchase price of the property. The fund which the bank will provide also depends on a lot of other factors, like your salary, credit score etc. For any prospective loan applicant, this immediately poses the question – how much is my home loan eligibility? To make it simpler we provide this chart to assess your borrowing capacity based on your income. While every bank has a different standard and limit to the income groups, they can be broadly categorized as shown below.
There are several factors that determine your eligibility and credit profile. These include your credit score, age, details of any other properties or investments you own, and sources of income, and vary from bank to bank. The income is an important because a fixed percentage of your EMI depends on the salary group you fall into. Broadly, these categories are as follows:
Case A: Net Monthly Salary <Rs. 17,000 (Net annual income of ~Rs. 2,00,000)
If your salary is close to Rs. 17,000 a month, the bank assumes your maximum monthly EMI repayment capability to be somewhere around 35% of your net fixed salary. This means that at a fixed salary of Rs. 15,000, your maximum EMI payment capability at 35% is Rs. 5,250. For a net salary of Rs. 16,500, this EMI comes up to Rs. 5,775.
Case B: Net Monthly Salary Rs. 17000- Rs. 42,000 (Net annual income greater than Rs. 2,00,000 but less than Rs. 5,00,000)
With an annual income more than Rs. 2,00,000 but less than Rs. 5,00,000, a bank assumes your maximum EMI payment capability is half, that is 50% of your monthly income. Assuming your salary is Rs. 30,000 per month, the bank sees Rs. 15,000 as your maximum EMI payment capability. Similarly at a monthly income of Rs. 25,000, your EMI payment capability is seen to be at Rs. 12,500.
Case C: Net monthly Salary Rs. 42,000- Rs. 83,000 (Net annual income greater than Rs. 5,00,000 but less than Rs. 10,00,000)
If your monthly income is more than Rs. 42,000 but less than Rs. 83,000, your maximum payment capability is assumed to be close to 55% of the net monthly income that is deposited by your employer every month into your bank account. If you earn Rs. 60,000 per month, your maximum payment capability is assumed around Rs. 33,000.
Case D: Net monthly Salary over Rs. 83,000
At a fixed net income over Rs. 83,000 per month, your maximum repayment capability is assumed to be close to 65% of your net monthly income. At a monthly income of Rs. 1,00,000, your EMI is calculated at Rs. 65,000.
Based on the category you fall into your home loan eligibility is given in the table below:
|Category||Net Monthly Salary (Rs)||Monthly EMI (Rs)||Loan eligibility at different interest rate (Rs Lacs)|
Additionally, if you are employed as sales personnel, you receive monthly incentives and/ or annual bonuses. If you are allowed to, this is reflected in your fixed monthly salary. Thus say your annual bonus is Rs. 50,000 in addition to your salary of Rs. 5,50,000. This raises your monthly salary to Rs. 50,000, which means your payment capability increases to Rs. 27,500.
Your home loan eligibility can increase with a co applicant with their own stable source of income, like your spouse or a sibling. This way the bank counts both the sources of income as one. This greatly increases your home loan eligibility. If both of you have the same level of income, your EMI payment capability doubles. Therefore it is always recommended that a loan be taken after a certain level of stability is achieved.