After a COVID-induced slowdown, real estate prices are on the rise. In such a scenario, buying a new home is expensive. Salaried individuals often rely on home loans to purchase real estate. The loan amount for salaried individuals depends on their net monthly income. Before offering a home loan, lending institutions assess the applicant’s repayment capacity. Apart from the net monthly income, the repayment capacity depends on many other factors. Read on to know the home loan amount for salaried individuals in India.
Home loan based on net salary
Are you wondering how much home loan I can get on my salary? Well, it starts with your monthly salary/income. The monthly income plays a significant role in deciding the home loan amount for an applicant. The lender must ensure that the applicant can repay the loan in EMIs. Before applying for a home loan, individuals need to understand the difference between monthly income and net monthly income. For example, let’s say an individual earns INR 60,000 per month. However, INR 5,000 is deducted from the salary automatically as an EMI payment for an existing loan . In such a case, the net monthly income will be INR 55,000 (monthly income – monthly deductions). The net monthly income is considered for home loan purposes, not the monthly income.
There is a limit to how much EMI can be deducted from the bank account of a salaried individual. Usually, an EMI should not go above 65% of the net monthly income. Considering the above example, 65% of the net monthly income is INR 34,000. It means the monthly EMI amount should not exceed INR 34,000.
Reputed lending institutions like Fullerton Grihashakti can offer loans up to 60 times the net monthly income. For example, if the net monthly income is INR 35,000, the sanctioned loan amount can go up to INR 24 lakhs. However, the maximum loan amount is approved on a case-to-case basis after considering several factors. It isn’t compulsory that anyone can get a home loan of 60 times their net monthly income. Only individuals with good credit scores, stable incomes, and sufficient repayment capacities, can get the maximum home loan amount. Loan applicants can use a home loan eligibility calculator online and find the approved amount.
Understanding the concept of repayment capacity for home loans
A high monthly income is never a guarantee for a high home loan. It depends on the repayment capacity of an individual. Lenders analyse the bank account statements of the applicant to know their repayment capacities. A lender will check the monthly expenses and debt before approving a home loan application. It could include checking the credit card expenses/bills of the applicant. The detailed expense report of an individual is reviewed before sanctioning a home loan.
With the help of bank account statements and expense reports, the lender calculates the debt-to-income ratio. From a lender’s perspective, the debt-to-income ratio/percentage should not be more than 0.36 or 36%. Individuals with a high salary but huge monthly debt may not get the desired home loan amount. Ideally, 50 to 75% of the income should be free for deductions for a home loan. For the same reason, it is better to clear affordable debts before applying for a home loan. Assess how much loan you can expect by using a home loan eligibility calculator online.
The role of the CIBIL score in sanctioning a home loan
Lenders view the CIBIL or credit score to know the loan applicant’s repayment capacity. Even though home loans are secured, applicants need a good CIBIL score. A low CIBIL score reflects the laxity of the applicant in paying EMIs timely. Usually, individuals require a CIBIL score of 700 and above to get the desired home loan amount. If the CIBIL score goes lower, the sanctioned home loan amount will decrease. Individuals with a good credit history often have healthy credit scores.
One should focus on building creditworthiness to get a home loan easily. Instead of wondering ‘how much home loan I can get on my salary’, fill out your home loan application online.