Learn How Home Loan Eligibility is Calculated on Your Salary

It is the first query that comes to mind if you are a salaried worker and want to buy a home. This article outlines the aspects of your salary that are considered when determining eligibility, the typical salary slabs, home loan interest rate and eligibility limitations, and how simple it is to apply for a house loan. The loan amount you qualify for is determined by several variables, including your current age, monthly income, financial responsibilities, credit score, job situation, and credit history.

Knowing the proportion of your pay taken into account for determining your eligibility for a house loan, as well as your salary slabs and eligibility amount, is crucial if you are a salaried worker.

Understanding Your Salary Structure

Typically, a gross salary is used to describe your pay. A gross wage is the sum of the following:

  • Basic wage
  • Medical reimbursement
  • Leave travel allowance (LTA)
  • Allowance for housing rent
  • Allowance for vehicles, and
  • Additional allowances

The Cost To Company (CTC), not the cost you take home, is the sum of the abovementioned elements. 

Your take-home pay is determined by deducting your employee provident fund contribution, source-deducted taxes, and any other adjustments required by organisational policies from your net compensation. For home loan eligibility considerations, your net wage is often considered in most cases.

What Factors Affect Eligibility For A Home Loan?

Whenever anyone applies for a home loan facility in India, the lender or creditor takes their age into account first and foremost. Financial institutions often try to keep the length of a home loan to the principal applicant’s age at retirement. It indicates that young professionals in their 20s and early 30s may quickly get a home loan for up to 25 years. However, it might be difficult for older candidates, particularly those over 40, to qualify for a longer tenure. Single applicants 50 years of age and older have often had home loans declined solely because of this.

Let’s divide income into salaried, professional, and self-employed. Whatever category the applicant comes into, they must have a reliable source of income. In general, lending money is less risky if the applicant is a working person.

○ Salaried Individual

You fall under this category if you have a job with a government agency or a legally recognised private business. Most banks demand that the candidate must have worked for the current company for at least one year before applying.  In addition, almost all lenders want payroll information, Form 16, bank statements, and an employer reference letter. Also required are proofs from the co-applicant and the guarantor (if applicable).

○ Independent Professionals

Independent professionals include doctors, dentists, architects, engineers, management consultants, chartered accountants, and other occupations. It is required to provide bank statements and ITR documents.

○ Self Employed

Do you run your own business or organisation? Or do you have other sources of income, such as shares or rental properties? You fall within this group, then. You may apply for a home loan if you have bank statements and tax-related documents to support it.

○ Rate of Interest

Eligibility for home loan financing is usually negatively correlated with the interest rate. Therefore, eligibility will be lower if the rate is more significant and vice versa.

○ Loan Term

Your home loan eligibility will increase if you choose a longer term. The EMIs will also be lower and more reasonable. The drawback to this, however, is that you’ll wind up paying more interest.

○ Outstanding Loan(s)

Indian banks and financial organisations typically advise maintaining an EMI to Income Ratio of between 50 and 60 per cent. It is to open a window for potential future loans or, if any, to pay off current debts. Unpaid loans, however, may seriously affect your eligibility.

○ CIBIL Report

Banks also carefully examine your credit repayment history from CIBIL (Credit Information Bureau India Limited), the nation’s leading and major credit reporting agency. They maintain thorough records of all information about your credit history and your interactions with creditors and lenders. A bad report may severely reduce your eligibility. You can use a home loan eligibility checker to estimate your eligibility for getting home loans in India. It would help ensure that you have determined your eligibility for home loans in India.