Home Loan Eligibility

In order to determine home loans eligibility, one very much needs to understand the calculations which might be involved in it. As calculations are very rarely explained in a simple form, it can be quite hard for a layman to fully grasp them. With the view to explain more easily, below 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) tend to consider a different percentage of monthly income for EMI payments for different monthly salary slab. The table below shows how the percentage of monthly salary which is considered for EMI payments tends to depend on the 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 of monthly salary, 55% of his salary will be considered for EMI payments. The amount calculated is therefore (55% of 25,000) is equal to Rs 13,750, which is also known as a disposable amount of income.
And, if another individual is drawing a 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 therefore implies that the percentage of the salary considered for EMI payments generally 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 consequently determined by EMI per lakh and individual income available for making EMI payments. Lets understand this with the table below:

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, the rate of interest might be 8%, tenure is 20 yrs and EMI per lakh is 836. For calculating the home loan eligibility, the disposable income (i.e. Rs13,750) will be divided by EMI per lakh (i.e. Rs 836), which works out to be Rs 1,664,000.

This is can be considered as the fundamental nature of calculating home loan eligibility but some HFCs have different methods of calculations, as they might consider gross salary instead of net salary for calculations. Further, for determining income available, they might have a different percentage structure from that of table shown above. In case of self-employed persons, different methods of calculation will be adopted.

Some intangible factors are also considered for the eligibility, these are: -

• Profession of the individual: HFCs have a great list of professions, which can be negative or black listed. Though the list is not official but any individual from these professions face lots of difficulties in obtaining a loan.
• Property’s Location: Like negative profession, there is a list of very negative area for which loan cannot be granted. For the loan, the property has to be within geographical area defined by HFCs.
• Individual Personal Details: These details generally include individual’s financial status, his credit repayments history, and saving habits etc. for deciding home loan eligibility.

Article Source: http://www.realestatepropertyarticles.com.

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