Understanding Home Loan Eligibility: Salary, EMI, and Loan Approval Process

For many, owning a home is a lifelong dream, and a home loan can be the key to turning that dream into reality. However, your choice of a mortgage loan depends largely on income, financial stability, and repayment capacity.

Lenders consider various factors before approving a loan, with your salary being one of the most important determinants. Let's explore how your salary impacts home loan eligibility.

How Salary Affects Home Loan Eligibility

Start your homeownership journey with the right mortgage and ensure you meet the eligibility criteria to make the process smoother.

Your salary plays a crucial role in determining the mortgage loan. Lenders consider your income to ensure you can repay the loan without financial stress. Here’s how your salary affects eligibility:

• Higher salary = High loan amount

  Banks and NBFCs provide loans up to 60% of your net monthly income. For instance, if your salary is ₹50,000 per month, you may be eligible for a loan of ₹30-35 lakhs, depending on other factors.

• Debt-to-income relationship (DTI)

  Lenders calculate your DTI to assess your financial obligations. A low DTI (below 40%) increases the possibility of loan approval.

• Employment stability and industry

  Applicants with stable jobs in reputable companies are more likely to receive approvals. You may need to show several years’ worth of salary slips to qualify for a home loan.

Factors that determine Home Loan Eligibility

Make informed decisions by comparing loan options and calculating your mortgage.

• Age and Loan tenure

  Young applicants (25-35 years) are often more favorable due to their longer remaining working years, with many lenders offering loan tenures of up to 30 years. Older applicants may have shorter loan terms available, impacting their loan eligibility.

• Credit score and history

  A credit score of 750+ increases approval chances and ensures better loan terms. A low credit or poor credit history may reduce eligibility or lead to higher interest rates.

• Existing financial obligation

  If you have an outstanding EMI, your loan eligibility may be reduced due to increased debt obligations. Lenders calculate the loan-to-value (LTV) to ensure repayment capacity. A low LTV (below 40%) increases the chances of loan approval.

• Employment stability and industry

  Various companies have a higher degree of approval for people with stable jobs. Applicants should provide continuous proof of income for at least 2-3 years, as a job stability reduces lender risk.

• Payment capacity

  Lenders require a minimum prepayment of 10-20% of the property value. A higher down payment reduces the loan amount, EMI, and the interest rate burden. It also increases the possibility of approval by reducing lender risk.

Tips to improve Home Loan Eligibility

Choose a lender that offers the best terms for your financial situation and goals.

• Maintain a high credit score

  Ensure your credit score score is 750+ by paying EMI and bills on time. Avoid multiple loan applications in a short period, as it can lead to poor credit scores. Check your credit report for errors and fix them.

• Reduce existing loans

  Reduce your outstanding debt and outstanding EMI before applying for a loan. A low DTI ratio increases the repayment capacity. It is beneficial to use an EMI calculator before applying for a loan to make better financial plans.

• Increase the prepayment

  Savings for a high down payment (over 20%) reduce the loan amount. The low loan amount reduces the EMI and the interest rate burden. Lenders prefer applicants who contribute a larger down payment, as it reduces the risk and loan amount.

• Choose a long loan time

  The option for a long repayment period reduces monthly EMI obligations. This makes it easier to meet the eligibility criteria, which improves the approval options. However, a long-term loan can increase the total interest.

Wrapping Up

To get the right loan without financial stress, it is necessary to understand the factors for your mortgage loan based on your salary. This includes credit scores, employment stability, and repayment capacity to determine eligibility. By improving financial health, reducing obligations, and making informed decisions, you can increase the opportunities for loan approval.

Always check home loan interest rates and use an EMI calculator before applying. If you are planning to apply for a mortgage, make sure you meet the eligibility criteria and select a lender who offers the best terms. Start your journey towards homeownership today with IIFL Home Loans.