If you don’t have a ready-to-use calculator for Home Loan eligibility , the thumb rule you can use for calculating your eligibility is multiplying the net salary by 60. Is it really that simple? Yes…it is. Here net salary is the crucial factor. For Instance –
(a) Your net salary is INR 50,000 per month and you need a home loan of around 30 lakhs.
(b) If your gross salary is more than your net salary even then that would not be considered.
(c) You do not have any other loan in your name.
(d) Broadly, you are eligible to get 60 times your monthly net pay as loan i.e 30 lakhs.
When you come to know by a bank executive that you are eligible for a home loan your desires increase and you feel glad. All this looks wonderful till the time you don’t actually apply for it. But things take a sharp turn when you actually apply for loan. You have to submit salary slip and pay the loan processing fees. The banks re-evaluate your loan eligibility after this and you come to know that it is much lower than what was calculated earlier. The Question that spins in your mind is – what caused this change? Your salary slip reflects the same amount (50k) and you don’t have any other loan in your name. Then what and where is the loophole? It could be in the bank’s marketing strategy to attract the attention of customers or you have low credit score. Although you get a net pay of rupees 50k per month but it includes certain components which are excluded while calculating your loan eligibility. These components are LTA and medical allowances. You may have many such queries on Home Loans & related things. You would need an expert to answer this before you take the big leap.
Hence banks will deduct these components from your salary and your home loan eligibility is reduced by about 10%.
For Example –
Net salary – 50,000
Less
LTA Amount -3,500
Less
Medical Allowances – 1,250
New Net Pay – 45,250
New Eligibility = (45,250 into 60) = 27,15,000 This is less than 30 lakhs by 10%. As i.e.
30,00,000
-27,15,000
=2,85,000
If you thought you were eligible for 30 lakh then now you need to manage 2,85,000 on your own.
The above mentioned case was based on net salary calculation.
The other issue to consider is loan availability on gross salary?
The rule that banks follow in this regard is that your monthly EMI should not be more than 50% of your monthly income because lenders approve your loan after evaluating your loan repayment capacity. This may differ – they can have some deviations as well. There are some determinants which need to be focused while considering your home loan eligibility like tenure of loan, your age , CIBIL score , current interest rate and so on. In addition to all this good credit record is one such factor which improves your chances of getting loan approved. Thus, it is always appreciable to calculate your loan affordability by using eligibility calculator.
A well structured financial plan involves appropriate allocation of salary between investment, expenses and loans. Home loan affordability needs to be meticulously focused as it emphasizes on the amount of down payment you can make, size of home loan you require, your current liabilities and monthly income. The total cost of your house and amount of down payment you can make will enable you to decide on how much loan amount you can get.
To summarize, we can say that to satisfy your home loan eligibility the amount of loan as well as the amount of EMI you need to pay should be of prime concern . This calculation can be best done with the help of EMI calculator. A robust and successful financial plan should be structured before getting a loan. Thus, applying for a loan and getting it approved are two different issues and entirely different from what we assume. A salaried person should thoroughly analyse various factors before applying for loan for a beneficial outcome.
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