Eligibility for Your Home loans | For determining home loans eligibility one needs to understand the calculations involved in it. As calculations are rarely explained in a simple form, it can be hard for a layman to understand them. With the view to explain easily, following is an illustration for the determination of home loan eligibility and the reasons for the same.
Easy Monthly Installments i.e. EMI Payments are calculated on the basis of monthly income of the individual. Housing Financial Companies (HFCs) consider different percentage of monthly income for EMI payments for different monthly salary slab. The following table shows how the percentage of monthly salary that is considered for EMI payments depends on the net monthly salary.
Net Monthly Salary % of salary (monthly) factored in determining EMI payments
Between Rs. 8,001 - 9,999 45% 10,000 - 19,999 50% 20,000 - 34,999 55% 35,000 and greater 60%
As per the table if an individual is earning 25,000 monthly salary, 55% of his salary will be considered for EMI payments. The amount calculated is (55% of 25,000) is equal to Rs 13,750, which is also known as disposable income. And if another individual is drawing salary of Rs 45,000 per month. In his case, Rs. 27,000 will be considered for EMI payments i.e. 60% of his salary. It means that percentage of salary considered for EMI payments rises with the increase in salary and vice versa. All HFCs lists in EMI table monthly EMI per lakh for varying tenures and interest rates, which is different for every HFC. The eligibility for home loans is determined by EMI per lakh and individual income available for making EMI payments. Lets understand this with the table:
Monthly Income (Rs) 25,000 Income available for EMI payments (i.e. 55% of Rs 25,000) or disposable income 13,750 Rate of Interest (%) 8.00 Tenure (Yrs) 20 EMI per lakh (Rs) 836 Home loan Eligibility (Rs) 1,664,000
In the above table rate of interest is 8%, tenure is 20 yrs and EMI per lakh is 836. For calculating home loan eligibility the disposable income (i.e. Rs13,750) is divided by EMI per lakh (i.e. Rs 836), which works out to be Rs 1,664,000.
This is the fundamental nature of calculating home loan eligibility but some HFCs have different method of calculations. Like they may consider gross salary instead of net salary for calculations. Also for determining income available, they may have different percentage structure from that of table shown above. In case of self-employed persons different method of calculations are adopted. Some intangible factors are also considered for the eligibility, they are:
• Profession of the individual: HFCs have a list of professions, which are negative or black listed. Though the list is not official but any individual from these professions face lots of difficulties in getting a loan.
• Property's Location: Like negative profession there is a list of negative area for which loan can't be granted. For the loan the property has to be within geographical area defined by HFCs.
• Individual Personal Details: These details include individual's financial status, his credit repayments history, saving habits etc. for deciding home loan eligibility.
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