Home Loan for Salaried

A key requirement for a successful home loan is your monthly salary or income. This is to check if you would be able to financially handle the added burden of a home loan EMI (Equated Monthly Installment). This is understood by taking into account your gross monthly income. Your monthly salary will also help your bank or lender to evaluate the maximum EMI (Equated Monthly Installment) that you would be able to afford over your regular lifestyle practices. This is understood by your net monthly income or your take home salary.

Let us assume that you are 30 years old and your gross monthly salary is INR 70,000. Let us further assume that your take home salary or net salary is INR 60,000 which are post all deductions by your employer. The bank or the lender in this case would only take into account your net monthly income of INR 60,000 towards consideration of your home loan and not INR 70,000.

We will further calculate the amount of home loan that you would be eligible, considering all other parameters are met. Normally, a lender or a bank would not issue a home loan for more than 65% of your net monthly salary. This is to ensure that you have at least 35% of your income to pay off your bills and maintain your lifestyle. That brings your eligible income to INR 39,000 per month. Let us further assume that you have an existing EMI from another loan or repayment. This will bring down your salary eligible for the proposed home loan to INR 34,000. The bank or the lender at this point may find you eligible for a home loan of INR 44,00,000, with a repayment tenure of 30 years and a rate of interest of 8.40%. This would mean a home loan EMI [Equated Monthly Installment] of INR 33,521.

From the above example, we can see that the bank or lender would agree on a home loan based on your salary and a few other parameters. Like, your remaining service period or employable years, in this case up until you are 60 years old. Hence your tenure will max out at 30 years. Based on the interest prevailing at that time and your credit worthiness scores like CRISIL or Experian, the bank or the lender would set the interest rates, in this case it was assumed to be 8.40%. With the above two parameters, an EMI below your eligible monthly income was calculated at INR 33,523. Your eligible home loan would improve drastically should you be able to find a bank or lender with a lesser interest rate. A decrease in interest rate by 1% in the above example would mean an increase in home loan amount by almost INR 9,00,000.

Your salary and most importantly, your net salary will answer how much you are eligible to receive as a home loan, should your application be successful, however, that is never the only deciding factor. The presence of a very high monthly income need not guarantee a bank or a lender that you are capable of repaying your home loan EMIs (Equated Monthly Installments). To this extent, a lender or bank will carry out their own assessment towards your repayment capacity, often by examining your bank statements to check for income inflows and outflows. A typical check would involve examining your monthly expenses, credit card payments, credit card debt, EMIs towards your other loans and your credit history. This would give them a fair idea of how much loan you would be able to afford. This is based on the income left with you after deductions of your mandatory monthly expenses and income to debt ratios. Most lenders and banks would require you to have 50% to 70% of your income to cover expenditures, existing EMIs and the EMI for the proposed home loan. One of the ways to increase your eligible home loan limit is by adding a co-applicant or co-borrower to the loan application, typically a spouse or a close relative like a parent. This would not only dramatically improve your eligible credit limit, but it will also help both of you in gaining income tax benefits.

While your salary plays a role in the eligible home loan, it would also be dependent on the credit worthiness and rate of interest. Your credit worthiness scores like CIBIL or Experian would allow a bank or lender to evaluate your previous credit repayment behaviors. The reports will also point out any missed or delayed payments, credit history like credit card usage and whether you are repaying your credit card bills on time, without any defaults. A high credit worthiness score would help you in securing a home loan at competitive rates. So if you are seeking a home loan as a salaried employee, keep all these factors in mind.