Buying your dream house requires different types of efforts. From inspecting the property to choosing the right home loan, you have to take care of various things at a time. Although all of them are crucial for the entire process, the first thing you need to confirm that how much home loan you can get on the basis of your annual income.
Many people do the mistake of selecting a property before checking their home loan eligibility. In the end, they have to make some unwanted adjustments. In order to avoid this, you should assess your financial condition and find out how much amount you can borrow. This article will guide you to make this decision.
Let’s begin with the process of determination of housing loan eligibility.
Lending institutions use various factors to decide your creditworthiness as well as repaying capacities. For this, they check your credit score and credit history, which gives them the idea of your creditworthiness. Instead of your in-hand salary, lenders consider your basic salary to decide the loan amount. Lenders exclude other allowances such as medical or HRA, etc, while deciding the home loan amount. In fact, lending organizations prefer to offer a home loan amount which higher than your disposable income.
For example, if your salary is Rs. 50,000 per month, then you can get a home loan of Rs. 30 lakh (approximately).
Now, even your salary is Rs. 50,000, you need to calculate your disposable income to see how much home loan amount you can get. Disposable income is the amount remaining at the end of the month after deducting all mandatory expenses like fuel, tax, groceries, etc. Lenders consider your disposable income to decide your home loan eligibility because of this the amount that you will be using for EMIs to repay the loan.
Furthermore, lenders also check your other financial liabilities while providing a home loan. Therefore, you become eligible for a lesser amount when you have taken other loans before applying for a home loan.
For example, suppose your salary is Rs. 60,000 and you are already paying Rs. 14,000 as an EMI of a personal loan. Now, let’s calculate again that how much home loan you can get on your salary if the interest rate is 10% and loan tenure is 2 years.
Normally, banks prefer to lend roughly 40% to 55% of your gross salary. This is done because; they want to ensure that you have enough funds to support your daily expenses. This reduces the possibility of a default. No, let’s see how much you can borrow,
|You Salary||Rs. 60,000|
|Total EMI you can afford||40%|
|Home Loan Interest Rate||10%|
|The total price of the house||Rs. 12,19,112|
|The maximum loan that you can take||Rs. 10,36,246|
|Home Loan EMI||Rs. 10,000|
|Down Payment||Rs. 1,82,866|
|Home Loan Tenure||20 years|
Now, 40% of Rs. 60,000 is Rs. 24,000. However, the bank is considering you eligible to pay Rs. 10,000 as your home loan EMI. This is because all your financial liabilities are taken into consideration while deciding your eligibility for a home loan.