The monthly salary of a home loan applicant plays a major role in determining their eligibility for total home loan amount. Some lenders consider the gross salary of a home loan applicant while others may factor in his net salary for ascertaining his loan amount eligibility. The net or in-hand salary of an employee is arrived at after accounting for deductions like Professional Tax, Tax Deduction at Source (TDS), Employee Provident Fund (EPF), etc. from his gross salary.
Lenders use two methods, the EMI/NMI Ratio and the Multiplier Method, either individually or as a combination to arrive at the home loan amount eligibility for their loan applicants.
EMI/NMI ratio is the total proportion of a loan applicant’s net monthly income (NMI) spent on paying both for their existing EMIs and for the EMI of the proposed home loan. Banks and NBFCs/HFCs usually sanction home loans to loan applicants whose total EMIs are within 50-60% of their monthly income. As longer tenures lead to lower EMIs, home loan applicants exceeding this limit can extend their loan tenure to reduce their EMI/NMI ratio and improve their loan eligibility.
As the interest rates set for a home loan applicant would also impact his EMI, home loan applicants should always try to opt for the lender offering the lowest home loan interest rates to get a higher loan amount.
Comparison Table for Home Loan Interest Rates
|Name of Lender||Up to Rs. 30 Lakh||Above Rs. 30 Lakh to Rs. 75 Lakh||Above Rs. 75 Lakh|
|SBI||8.40% - 10.15%||8.40% - 10.05%||8.40% - 10.05%|
|HDFC Bank Limited||8.50% onwards||8.50% onwards||8.50% onwards|
|LIC Housing Finance||8.50% – 10.35%||8.50% – 10.55%||8.50% – 10.75%|
|Kotak Mahindra Bank||8.70% onwards||8.70% onwards||8.70% onwards|
|PNB Housing Finance||8.50% - 14.50%||8.50% - 11.45%||8.50%-11.45%|
|Punjab National Bank||8.55%-10.25%||8.50%-10.15%||8.50%-10.15%|
|Bank of Baroda||8.40% - 10.65%||8.40% - 10.65%||8.40% - 10.90%
|Union Bank of India||8.40% – 10.80%||8.40% – 10.95%||8.40% – 10.95%|
|IDFC First Bank||8.85% onwards||8.85% onwards||8.85% onwards|
|L&T Finance Limited||8.60% onwards||8.60% onwards||8.60% onwards|
|Bajaj Housing Finance||8.45% onwards||8.45% onwards||8.45% onwards|
|Tata Capital Housing Finance||8.70% onwards||8.70% onwards||8.70% onwards|
|Federal Bank||8.80% onwards||8.80% onwards||8.80% onwards|
Note: Interest rates as on 22nd September 2023
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Many banks and NBFCs/HFCs use the multiplier method to set the loan amount eligibility for their home loan applicants. Under this method, lenders calculate the home loan amount based on a pre-determined multiple of an applicant’s monthly income. Lenders usually offer home loans to salaried individuals for loan amounts of up to 72 times of their gross monthly income or 6 times of their gross annual income (based on IT returns). For example, if the net monthly salary of an employee is Rs. 30,000, they can avail a home loan for loan amounts of up to Rs. 21.6 lakhs. If there is more than one earning member in a household, the lender can combine the net monthly income of all such members to maximise the eligibility amount for home loan.
Maximum Loan Amount for Different Monthly Salaries based on Multiplier Method
|Monthly Salary||Maximum Loan Amount|
|Rs. 20,000||Rs. 14,40,000|
|Rs. 30,000||Rs. 21,60,000|
|Rs. 40,000||Rs. 28,80,000|
|Rs. 50,000||Rs. 36,00,000|
|Rs. 60,000||Rs. 43,20,000|
|Rs. 70,000||Rs. 50,40,000|
|Rs. 80,000||Rs. 57,60,000|
|Rs. 90,000||Rs. 64,80,000|
|Rs. 1 lakh||Rs. 72,00,000|
Note: For the above calculation, the existing loan repayment obligations are considered as zero. The maximum loan amount is 72 times the monthly salary for the multiplier method.
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Other Factors Impacting Eligibility for Home Loan Amount
Apart from a loan applicant’s Net Monthly Income, some other factors that influence their home loan eligibility are as follows:
Lenders usually prefer the home loan borrowers to complete their loan repayment by the time they reach 70 years. As the maximum tenures of home loans usually go up to 30 years, consumers in their later stages of life would be eligible for shorter tenures resulting in bigger EMIs. If such home loan applicants have a lower repayment capacity due to inadequate salary, then they would be offered lower loan amounts.
The loan to value (LTV) ratio of home loans is the overall proportion of a property’s value that a borrower can finance through home loans. These LTV ratios cannot exceed the regulatory caps set by the RBI. Here is the breakup of the home loan amounts and their corresponding caps on LTV ratios:
|Loan Amount||LTV Ratio|
|Up to Rs 30 lakh||Up to 90% of the property’s value|
|Above Rs 30 lakh to Rs 75 lakh||Up to 80% of the property’s value|
|Above Rs 75 lakh||Up to 75% of the property’s value|
The final LTV ratio for a Home Loan applicant is then set on the basis of the credit risk assessment undertaken by the individual lenders. Some of the factors used during the credit risk assessment process include the applicant’s credit score, income profile, occupation profile, employer’s profile and other aspects of his credit profile.
Tip: Add co-applicant to increase your home loan amount eligibility
Lenders consider the monthly income of the home loan co-applicant(s) for determining their loan amount eligibility. Hence, loan applicants having inadequate salary to purchase their dream homes can boost their loan amount eligibility by looping in a family member as co-applicant(s), preferably those with stable income and good credit scores. Note that some lenders offer lower interest rates to home loan applicants roping in female co-applicants.
Q1. How do I calculate the total interest cost for my home loan?
Ans. You can calculate the total interest cost of your home loan using Paisabazaar Home Loan EMI Calculator. You only need to enter your loan amount, interest rate and loan tenure into the calculator and get the total interest cost and EMI.