Discover how to calculate the maximum home loan amount you can secure based on your salary.
How much home loan can I get?
Home loan eligibility has to be understood at two levels -
- Whether you are eligible to get a home loan considering your income and credit score.
- What is the amount of loan that you are eligible for?
Obviously, this is contingent on a number of factors like income, CIBIL score, repayment capacity, liabilities etc.
The bottom line is the better your repayment capacity, the higher is your loan eligibility. However, when it comes to home loans, it is best to be conservative and not stretch yourself too much.
If you are a salaried person and if you are wondering how much loan I will get on my salary, then you can probably get all your answers in this segment.
Two Factors – Net Income and Income Stability
You need to understand that the home loan eligibility is largely a function of two very important factors viz, net income and income stability. Let us understand these two factors.
Your appointment letter or increment letter mentions your gross salary, but that is not what you get on hand. There are deductions toward provident fund, group health insurance plans, tax to the government, etc. What you get on hand after all that is your net income.
This is the starting point.
Even to this net income, adjustments like household expenses, EMIs on other loans, rental commitments are all considered before deciding your loan eligibility. This is called the effective loan eligibility.
Let us now turn to stability of income. The stability of income refers to how stable and reliable are your income flows. The bank will prefer a salary from an established company compared to a smaller company or start-up. Also, they will prefer an employee role over a freelancer or consultant role as the flows are more assured. The stability factor inclines many banks to give you home loans, even when other factors are not too favourable.
Understanding The Eligibility Multiplier
One of the most important factors that the bank considers when giving the home loan and deciding the home loan eligibility is the eligibility multiplier. The bank internally assesses what multiplier to assign to you on the gross income and on the net income. There are normally 3 conditions in the eligibility multiplier.
- There is a gross eligibility multiplier that is often about 4 times your annual income. If you are earning Rs. 1 lakh a month, then on an annual income of Rs. 12 lakh, the bank would be willing to fund you a maximum of up to Rs. 50 lakhs. However, this is the outer limit that they will fund you for.
- Then there is the net eligibility factor assuming that your taxes, PF, and group insurance take away about 25% of your gross income. In such cases, the multiplier is normally set at about 6 times, after considering all other factors. For instance, if your net salary after PF, TDS and group insurance is around Rs9 lakh, then the bank would lend you about Rs. 48 lakhs to Rs. 54 lakhs in a best case scenario.
- Lastly, the generally advised rule is that the home loan EMI cannot exceed 40% of your disposable income. In the above case, if your net monthly disposable income comes to Rs. 45,000 per month, then you will be given a loan that approximately corresponds to a similar EMI on a 15-20 year loan. That would make you eligible for a loan in the range of Rs. 45 to Rs. 50 lakhs. You can use the SBI Realty new home loan calculator to check how much loan you could possibly get based on your income.
Generally, the banks run a multiple check to just reassure themselves that their money is safe and the borrower is able to service the loan. The eligibility multiplier will broadly answer how much home loan can I get, especially if you are looking to understand how much loan I will get on my salary.
Banks Go Beyond Salary Numbers Too
The good thing is that while the above parameters broadly decide the model of home loan eligibility, they are not the last word. You can improve your loan eligibility in a number of ways.
- You can add to your loan eligibility by bringing in a co-signer as a guarantor or a co-applicant with a good CIBIL score and stable income. This is more relevant if you are a freelancer or consultant but your spouse has a full-time job. In such cases, a co-owner can add more value to the eligibility of the borrower.
- You can enhance your loan eligibility by reducing your liabilities and the EMI on such liabilities. Loan repayment and loan consolidation can help in such cases and that also improves your home loan eligibility.
- You can also boost your loan eligibility by showing your existing assets, or even offering an asset collateral to enhance your loan eligibility.
The message is that you can make your own efforts to boost your eligibility for home loan.