How Much Home Loan Can I Get on My Salary?

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“How much home loan can I get on my salary?“ If you are a salaried employee and you plan to own a house, this is the first question that pops up in your mind. This article will explain to you what part of your salary is considered while calculating eligibility, what are the common salary slabs & their eligibility amounts, what are the other factors affecting your eligibility and finally how easy it is to apply for a home loan.

Buying one’s own house is a major step for many people in achieving a sense of settledness. This is especially a status thing in Indian culture. However, for the majority of the salaried population, real estate prices are beyond their reach. Only after diligently building their savings can they finally make this dream a reality, often later in life. This is where availing of a home loan can catapult oneself to achieve their homeownership dream at an early age. 

Understand your salary:

Quoting salaries can involve using figures representing either gross or net (in-hand) salary. Thus, it is important to understand the difference between gross and net salary. This is because financial institutes often consider the net component of one’s salary while arriving at their home loan eligibility. Salary structure differs across various organizations. However, it is broadly divided into the following components:

1. Basic Salary
2. Allowances Like Medical Allowance, Leave Travel Allowance (LTA), House Rent Allowance (HRA), Other Allowances, etc.

The above components form the gross part of the salary. However, this is not the final amount that the employee takes home. There are some mandatory deductions from the gross total. These are deductions for the Employee Provident Fund (EPF), Tax Deduction at Source (TDS), Professional Tax, etc. The deductions completed, the remaining amount constitutes the net salary, which employees can call their in-hand pay or salary. Home loan eligibility calculation considers an applicant’s net salary alongside other factors.

How Much Home Loan Can I Get on My Salary?

As a rule of thumb, salaried individuals are eligible to get home loans approximately up to 60 times their net monthly income. So, if your net monthly salary is ₹40,000, you can get a home loan up to approximately ₹24 lakh. Likewise, if you earn ₹35,000 per month, you can get approximately up to ₹21 lakh. An accurate way of arriving at eligibility is by using a home loan eligibility calculator which takes into consideration various other factors apart from net monthly income. For a quick reference, we have listed down common net monthly income slabs and their corresponding amount eligibility. These values have been calculated by using the HomeFirst Home Loan Eligibility calculator assuming the following conditions:

Rate of Interest: 10% per annum

Tenure: 20 years

Existing EMIs: None

Number of Household Members: 3

Note: If there is more than 1 earning member in a household, the net monthly income of all earning members can be combined to arrive at a higher home loan eligibility amount.

Other Factors Impacting Home Loan Eligibility:

Several other factors impact the home loan eligibility apart from the net monthly income. They are as follows:

1. Age: Home Loans are available for applicants between 21 to 55 years of age, but generally, financial institutes prefer to sanction home loans to the younger population. The reason is that younger applicants have a longer working life. Therefore, the chances of repayment of home loans are high. In the 50s, one may get a lower home loan amount and for a shorter duration.
2. Employer and Work Experience: People working in a reputed organization are more likely to get a home loan as they are considered to be more secure. This gives confidence of timely payment of EMIs. Likewise, if you are working in a reputed organization, then you might be eligible to take a higher amount compared to someone working with not so reputed organization if all other factors are considered equal. Similarly, your work experience speaks a lot about your stability and acts as a positive pointer in your application.
3. Credit Score: One of the essential factors in determining your eligibility is your past payment track record of loans which is also captured by credit score. Even if you earn a very handsome salary, a poor credit score can negatively impact your chances of getting a home loan. Generally, financial institutes prefer a credit score of more than 650. A credit score above 750 can also give you an upper hand to bargain for lower home loan interest rates. 
4. Existing Obligations (also known as Fixed Obligation to Income Ratio or FOIR): Financial institutes arrive at home loan amount eligibility of a person only after taking into consideration their existing obligations concerning EMIs and outstanding dues of other loans which they might have availed like a car loan, consumer durable loan, personal loan, credit cards, etc. Lenders prioritize responsible lending practices, which is why they assess net salary to ensure manageable repayments and EMI for home loan borrowers. FOIR is the percentage of the Sum of All Existing Monthly Obligations to one’s net monthly income. Typically, it should be less than 50% for eligibility.
5. LTV (Loan to Value): Even if you have a higher home loan eligibility in terms of your net monthly income, financial institutes only fund up to 75% to 90% of the total cost of the property. This is done to ensure they have enough buffer to liquidate the underlying asset & recover their amount in the event of a default.
6. Property’s Legal & Technical Approval: In terms of home loans, health of the underlying asset is of utmost importance. Financial Institutes have 2 main evaluation criteria for the property that the applicant is about to purchase. The first one is to examine the legal chain of the property to establish a clear title & ownership and the second one is to determine the market value of the property. Both these evaluations are generally done by independent lawyers & valuers who are appointed by that financial institute.

Apply for Home Loan:

Before initiating a search for the dream house, you should have some idea about the home loan amount you will be eligible for based on your salary. It will help in making a budgetary decision about the property you wish to purchase. You can check the home loan eligibility calculator to calculate how much amount you are eligible to get. Once the property is finalized, you can visit the HomeFirst website and fill up the inquiry form to receive a call back from our  Counsellors. You can refer this article to know more about home loan terms or this article for documents needed for home loan applications

With the above information in place, one can answer the question of how much house loan one can get on his/her salary. This will help them take a giant step towards buying their dream home.

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