Want To Apply For A Home Loan? Know Your Eligibility Based On Income

Your income is one of the key factors that determine the amount you can borrow.

Today, there are many financial institutions that offer affordable financing and enable you to buy your dream home. However, there are a few things to look at before you apply for a home loan. One of these is the relationship between your income and the sanction you receive.

Understanding this will help you apply accordingly and plan your loan better. So, read on to know how much loan you can get against your income and other factors that affect your eligibility.

Loan Amount Based on Income

Your income is one of the key factors that determine the amount you can borrow. However, different lenders offer different loan amounts for different incomes. This is because there are other factors that affect your eligibility and, ultimately, the quantum you can borrow.

Your income is one of the most crucial factors that lenders look at when you apply for a home loan. This is because your income speaks to your repayment capacity. A high income generally means you can manage the EMI of a higher loan amount and vice-versa.

As such, by assessing your income, lenders can help ensure timely repayment and reduce their risk. This is also why many lenders have income as an eligibility criterion. While lenders have different ways of assessing your income-based loan amount eligibility, there are other common methods such as the EMI-Income ratio and multiplier method.

When it comes to the EMI-income ratio method, the lender evaluates the EMI amount based on your income. Generally, the EMI amount should be kept under 50% of your income. This means if you have a net monthly income of INR 1 Lakh, you can get a loan amount with an EMI of up to INR 50,000.

In the multiplier method, lenders may offer up to 72 times your net monthly income or six times your net annual income. This means that if your monthly income is INR 1 Lakh, you can get a loan of up to INR 72 Lakhs (1X72 or 12X6).

Evaluating how much you can borrow before you apply for a home loan can help you choose a suitable lender. You can use an eligibility calculator for this.

Many lenders offer an eligibility calculator on their website that gives you an estimate of the amount you can borrow based on your income and a few other information. Here is an overview of loan amounts calculated via an eligibility calculator for a 30-year-old borrower with no monthly obligations:

Disclaimer: The above figures are an estimate. The actual amount may vary depending on the lender and applicant.

Note that the above estimates are for income with no other obligations. If you have other obligations or dues, the amount may reduce accordingly. You should also remember that these are estimates, and the actual loan amount eligibility may vary. 

As such, try to keep a buffer amount when you apply for a home loan. This will help improve your chances of getting the funding you need at an affordable cost.

Other Factors Affecting Your Loan Amount

Consider these factors before you apply for a home loan to ensure that you can get the funding you need.

Loan Tenure

The repayment period impacts your loan amount because it impacts your EMI. A higher tenure generally means a lower EMI amount because there are more instalments. Alternatively, a shorter tenure would result in higher EMI because there are fewer instalments.

The tenure affects the loan amount because the EMI-income ratio is one of the factors that lenders consider to determine how much you can borrow. However, keep in mind that tenure influences your home loan interest rate and, thereby, your borrowing costs. So, decide your repayment period accordingly.

Creditworthiness

Your creditworthiness is a crucial aspect that lenders assess when you apply for a home loan. Good creditworthiness implies a low risk and vice-versa. Generally, this is through your credit score, which also speaks of your borrowing capacity.

Your creditworthiness also impacts the home loan interest rate and, therefore, your borrowing costs. So, be sure to apply with a good score.

Age

Your age influences the loan amount because it gives an idea about your income inflow. Being close to retirement when you apply for a home loan would mean you would have stability only for a few years and vice-versa.

Given this, lenders have a maximum age criterion of 60-70 years.

Moreover, being close to retirement while applying for a loan also impacts your tenure. This is because your age at the end of tenure should not be more than the maximum age criterion. As a result, your age influences the amount you can borrow.

Property Value

Home loans are secured loans, and when you apply for a home loan, the home you purchase serves as the collateral. As such, lenders only offer a certain value of the property as a loan. This is also known as the LTV ratio, and it varies depending on the lender.

For example, a lender has an LTV ratio of 70%, and the property value is INR 1 Crore. Here, you can get up to INR 70 Lakhs as a loan. However, a higher value would mean a higher loan amount. As such, the property value plays a critical role in determining the amount you can borrow.

Armed with this information, you can choose a lender that offers the best deal and get your dream home without any compromises. You can also work on some of these factors to boost your chances of getting a higher loan amount.

However, keep in mind the impact of your home loan on your current and future finances. Ensure that you can pay the down payment and manage the EMIs throughout the tenure without any strain. This way, you keep your assets and financial well-being secure.

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