When planning to purchase your dream home, it's crucial to understand how much loan you can secure based on your salary. Your income is a primary factor that lenders consider when assessing your Home Loan eligibility.
Generally, the higher your salary, the more loan amount you can qualify for. However, other factors such as your age, existing debts, credit score, and loan tenure also play a significant role in determining your borrowing capacity.
Factors affecting your Home Loan eligibility
- Age: Younger applicants may be eligible for longer loan tenures and higher loan amounts, as they have more working years ahead.
- Existing debts: If you have substantial outstanding loans or credit card balances, it may reduce your Home Loan eligibility. Pay off any outstanding loans or credit card dues to improve your debt-to-income ratio and boost your loan eligibility.
- Credit score: A good credit score reflects your financial discipline and can help you secure better loan terms and higher loan amounts.
- Loan tenure: Opting for a longer repayment period can increase your eligible loan amount, as the EMI is spread over more years.
- Include a co-applicant: Adding a family member with a stable income as a co-applicant can increase your loan eligibility, as the lender will consider your combined income.
Role of the debt-to-income ratio in determining your loan amount
Lenders often assess your Debt-to-Income (DTI) ratio, which is the percentage of your income used to cover debt repayments. To ensure your Home Loan is manageable, using a home loan calculator is helpful, as it’s generally recommended that your total EMIs should not exceed 40-50% of your monthly income.
For example, if your monthly salary is ₹80,000, your total monthly debt obligations (including the new Home Loan EMI) should ideally not surpass ₹32,000 - ₹40,000. Maintaining a low DTI ratio improves your chances of securing a higher loan amount.
How does your age influence Home Loan eligibility?
Your age can affect the maximum loan tenure available to you. Younger applicants in their 20s or 30s can typically avail of longer tenures up to 30 years, which translates to lower EMIs and higher loan eligibility. For those nearing retirement, lenders may restrict the tenure to ensure the loan is repaid before the applicant's retirement age. This can result in higher EMIs and lower loan eligibility.
Conclusion
Understanding how your salary impacts your Home Loan eligibility is a crucial step in your home-buying journey. By considering factors such as income, age, existing debts, and credit score, you can assess your loan potential and plan accordingly. Utilising a Home Loan calculator can simplify the process and give you a clear picture of your borrowing capacity.
No VCCircle journalist was involved in the creation/production of this content.