As you become financially independent, you start working on your dreams. And one of the dreams is to get a home of your own. A house purchase requires a lot of capital, which is impossible for a young individual to save at the start of their career. But you can always opt for a Home Loan. Let us see how your salary affects your Home Loan.
What is a Home Loan?
A Home Loan is an amount a person borrows from a lender to buy or construct a house. This loan is granted at an interest rate and repaid through EMIs over a given tenure. You should check out Home Loan eligibility calculators available online; to determine the loan amount you are eligible for.
Benefits of a Home Loan
In today’s age, Home Loans are the best way of getting the house of your dreams. It is a wise financial decision for a salaried individual; it gives
tax benefits and helps improve your credit score. But all these benefits are given if you make your EMI payments regularly.
Home Loans are also a good way of gaining profits in real estate. Real estate prices are always on the rise. You can acquire a property sooner through a Home Loan and then sell it for a profit within a couple of years. How does your salary affect your Home Loan?
An individual’s salary is a significant factor in a Home Loan. Your salary determines how much EMI you would be able to pay. A lender calculates your in-hand salary, deducting other values like gratuity, PF, medical and travel allowance, etc. The final salary after this deduction will determine the loan amount for which you are qualified.
Most lenders will provide a loan amount of around a certain multiple of your monthly salary. For example, if your monthly income is Rs. 40,000, you are eligible for a Home Loan of approximately Rs. 18 Lakh.
It is, however, a rough estimate. You can find the exact value of your loan amount using a Home Loan calculator. Using such a tool, you need to enter your monthly salary, interest rate, and tenure to know the exact amount.
The lenders are very particular about this loan amount as they risk losing money when they hand out loans. An individual’s salary is the primary factor that decides their financial capability. Therefore, if you are looking for a healthy loan amount, it will be a good idea to take it after advancing your career.
The organisation you work for
The organisation you get your salary from also impacts your Home Loan eligibility. If you work at a multinational company or the public sector, you have better eligibility for a Home Loan.
And if you are engaged in freelance work or work for a private organisation with little reputation, even with the same salary, you might not be eligible for the same loan value.
Your salary and where you get it from impact your Home Loan eligibility.
Debt To Income Ratio
When assessing an individual’s salary, their debt to income(DTI) ratio is also checked. The DTI ratio is your monthly income divided by the debt you owe. The lower your debt-to-income ratio is, the higher the loan amount you can get. Keeping your debt-to-income ratio lower than 50% will keep you in good stead when applying for a online Home Loan.
Thus, if you get a hike in your salary, your debt-to-income ratio will automatically decrease, giving you a better deal on a Home Loan.
Eligibility Criteria for Home Loan for a salaried individual
If you are a salaried employee applying for a Home Loan, you need to know the following eligibility criteria.
- The salaried employee should be within the age limit of 18-60 years
- For individuals residing in metro cities like Delhi, Mumbai, Pune, Chennai, and Bangalore, the minimum monthly income is Rs. 20,000. For all other cities, the income requirement of the individual is Rs. 5,000 per month.