Purchasing a home is expensive since it includes many additional costs apart from the cost of property. This is why applying for a home loan is a good option to help decrease the financial burden.
However, whether or not a person is eligible for a home loan depends on a lot of factors including their monthly income. Read on to know in detail about home loans and how salary is important in determining an individual’s eligibility for it.
Simplest way to calculate home loan eligibility
The easiest way to check a person’s eligibility for a housing loan is through a home loan eligibility calculator. These are online tools that various lenders provide on their websites for free. Using this tool will help you to know whether you meet the criteria for applying for a housing loan and decrease the chances of rejection of a loan application.
The following are the steps to using it-
- Go to the website of your loan provider.
- Enter your date of birth and city of residence.
- Set the monthly salary and preferred loan tenor of up to 30 years.
- Input the details of other income sources if there are any.
- Mention your EMIs in case of ongoing debts.
- Recheck all entries and click on ‘check your eligibility’.
How is income related to home loan eligibility?
It is always advisable to take loans when a person has a fixed income source and a good pay package. This is to ensure timely EMI payments without any financial burden. Moreover, lending institutions take into consideration the monthly salary of an individual to determine how much loan they can get and also the home loan rates at which they pay interest.
The above-mentioned factors along with a high monthly salary also ensure better home loan interest rates.In the case of salaried individuals, the lenders also check the credibility of the employers and whether or not they can pay their employees consistently for a long period.
Here are 2 tips to ensure your housing loan does not put pressure on a person’s earnings-
- A borrower must ensure that their EMI does not exceed 40% of their monthly income. For example, if an individual earns Rs. 50,000 per month, then their EMI payments should not exceed Rs. 20,000.
In case the EMI exceeds 40% value, a borrower can opt for a home loan of a smaller amount.
- An excellent way to increase the home loan amount without increasing the EMI is to utilise the full length of the available tenor.
Apart from income, there are additional ways to increase eligibility for a home loan.
4 tips to improve home loan eligibility
There are several ways to increase chances of approval for a housing loan, such as-
- Repay debts before time if possible.
- Maintain a credit score of above 750.
- Add a co-applicant with a high credit score.
- Declare additional income sources (if any).
Types of interest rates on housing loans
Lenders usually offer 2 types of home loan rates which are-
- Fixed interest rate- This type of interest rate remains same for the entire tenor of the loan. Along with a high monthly salary also ensure better house loan interest rates. Availing of a home loan with a fixed interest rate allows an individual to plan and calculate EMI at the very beginning of the loan tenor.
- Floating interest rate- Unlike fixed rates floating rates are subject to change throughout the tenor of loan. Floating interest rates are a good option if the changes in the market indicate falling rates.
The application process for a home loan is simple.
How to take a home loan?
Here is a step-by-step guide for online application for a home loan-
- Visit the lender’s online portal.
- Enter personal, financial, and employment details in the relevant sections.
- Calculate home loan eligibility by using the eligibility calculator.
- Use the home loan EMI calculator to effectively plan the loan.
- Provide property-related documents.