Buying a home is one of the most significant decisions of a lifetime. There are atleast 5-10 sms spams on my phone everyday by different builders with different offers, price range. While I did go around trying to see the offers from various brokers, I realized buying isn’t an easy decision and to be honest I did waste a lot of my time till I decided to sit back a re-plan. My planning started with the following basic question. What can be my budget for the home? How much loan am i eligible for? Being a working professional with savings from last few years of work life, my budget for purchasing the home is pretty much decided by the maximum eligibility for home loan.
For a majority of people which includes me, the sources of finance for buying a new home includes the following
a. Personal savings till date
b. Home loan from a bank or other financing institutions
As per the current RBI norms, the applicant must contribute a minimum 20% of the cost of the purchase price of the home. This mean the banks or financial institution can provide only 80% of the purchase price. The immediate question which comes to everyone’s mind is – How much is my home loan eligibility ? Here is quick guide to calculate your home loan eligibility even before approaching you bank. Most banks use a similar benchmark.
There are several factors that determine your eligibility which includes your education profile, your credit history, age etc. However to simplify the calculation, the banks use the following broad benchmarks to calculate your home loan eligibility based on your EMI payment capability.
Case A : Net monthly Salary < Rs 17,000/- (Net annual income of < 2,00,000)
If your net monthly salary is upto Rs 17,000 the banks assume your maximum monthly EMI payment capability to be ~35% of your net monthly fixed salary ( Salary that hits your bank account after deductions). For e.g if your monthly fixed salary is Rs 15,000/- then your maximum monthly EMI payment capability is Rs 5,250/- (i.e 15,000 * 35%).
Case B : Net monthly Salary Rs 17,000/- to INR 42,000 (Net annual income of greater than 2,00,000 but less than INR 5,00,000)
If your net monthly salary is above Rs 17,000 but less than INR 42,000/- the banks assume your maximum monthly EMI payment capability to be ~50% of your net monthly fixed salary ( Salary that hits your bank account after deductions). For e.g if your monthly fixed salary is Rs 40,000/- then your maximum monthly EMI payment capability is Rs 20,000/- (i.e 40,000 * 50%).
Case C : Net monthly Salary Rs 42,000/- to Rs 83,000 (Net annual income of greater than 5,00,000 but less than INR 10,00,000)
If your net monthly salary is above Rs 42,000 but less than INR 83,000/- the banks assume your maximum monthly EMI payment capability to be ~55% of your net monthly fixed salary ( Salary that hits your bank account after deductions). For e.g if your monthly fixed salary is Rs 50,000/- then your maximum monthly EMI payment capability is Rs 27,500/- (i.e 50,000 * 55%).
Case D : Net monthly Salary > Rs 83,000 /- (Net annual income of greater than 2,00,000 but less than INR 10,00,000)
If your net monthly salary is above Rs 83,000 the banks assume your maximum monthly EMI payment capability to be ~65% of your net monthly fixed salary ( Salary that hits your bank account after deductions). For e.g if your monthly fixed salary is Rs 1,00,000/- then your maximum monthly EMI payment capability is Rs 65,000/- (i.e 1,00,000 * 65%).
Based on which category you fall into, your home loan eligibility is given in the table below.
Loan eligibility based on your monthly Salary and also provides the EMI payment.
Category |
Net Monthly Salary (Rs) |
Monthly EMI (Rs) |
Loan eligibility at different interest rate (Rs Lacs) |
|||
10.0% |
10.50% |
11.00% |
11.50% |
|||
Case D |
3,00,000 |
1,95,000 |
202.00 |
195.32 |
188.92 |
182.85 |
Case D |
2,60,000 |
1,69,000 |
175.13 |
169.27 |
163.73 |
158.47 |
Case D |
2,00,000 |
1,30,000 |
134.71 |
130.20 |
125.95 |
121.90 |
Case D |
1,50,000 |
97,500 |
101.03 |
97.66 |
94.46 |
91.43 |
Case D |
1,20,000 |
78,000 |
80.80 |
78.13 |
75.57 |
73.14 |
Case D |
1,10,000 |
71,500 |
74.09 |
71.62 |
69.27 |
67.05 |
Case D |
1,00,000 |
65,000 |
67.35 |
65.10 |
62.97 |
60.95 |
Case D |
90,000 |
58,500 |
60.62 |
58.60 |
56.67 |
54.86 |
Case C |
80,000 |
44000 |
45.60 |
44.07 |
42.63 |
41.26 |
Case C |
70,000 |
38500 |
39.90 |
38.56 |
37.29 |
36.10 |
Case C |
60,000 |
33000 |
34.20 |
33.05 |
31.97 |
30.94 |
Case C |
50,000 |
27500 |
28.49 |
27.54 |
26.64 |
25.78 |
Case B |
40,000 |
20000 |
20.72 |
20.03 |
19.38 |
18.75 |
Case B |
30,000 |
15000 |
15.54 |
15.02 |
14.53 |
14.07 |
Case B |
20,000 |
10000 |
10.36 |
10.02 |
9.69 |
9.38 |
Case A |
15,000 |
5250 |
5.44 |
5.26 |
5.09 |
4.92 |
Note: Some banks calculate the maximum EMI payment capability on the basis of your Gross salary then you can do the above broad calculation on the following basis
- 40% of monthly gross income if < 15,000
- 45% of monthly gross income if >15,000 but upto 45,000
- 50% of monthly gross income if > 45,000
If I have monthly incentive or annual bonus can I get higher home loan eligibility?
Apart from this if you are employed as a sales personnel where you have monthly incentives or if you have a annual bonus, then ~40%-50% of your net monthly bonus / incentives is added to your monthly fixed salary (provided you can show that you have been receiving the same). E.g if your monthly fixed salary is Rs 50,000/- (as in Case C above) and you have an additional annual bonus of say Rs 1,00,000 / – which mean a payment of Rs 80,000/- after reducing 20% income tax . Your monthly EMI capability increase to ~ Rs 29,000/- (i.e [ monthly fixed 50,000 + 40% of monthly net bonus (80,000*40%/12) ] * 55%)
Increase your home loan eligibility with a co-applicant ?
One can also increase the home loan eligibility if you have a co-applicant who has additional income say for e.g your spouse. In the event your spouse is also salaried and is shown as a co-applicant, then the banks calculate the eligibility for you and your spouse separately and the same is added for your joint eligibility. For e.g if your salary is INR 70,000/- then as per Case A your maximum monthly EMI payment capability of 65% of your monthly fixed salary w is Rs 45,500/- (i.e 70,000 * 65%). If your Spouse salary is INR 50,000/- then as per Case A your spouse maximum monthly EMI payment capability of 65% of his or her monthly fixed salary is Rs 32,500/- (i.e 50,000 * 65%). Hence your combined maximum monthly EMI payment capability is Rs 88,000/- ( 45,500 + 32,500).
Note: if your’s and your Spouse salary is less than 40,000 however the combined is more than 42,000/- then your EMI capability is still calculated on a conservative basis as per Case B and not as per case C