- Wondering whether a contractual employee status can bag you a home loan? Well, it's possible
- Reasonable work experience, regular contract renewals can help gain the lender's nod for a home loan
As the home loan is a long-term commitment that can stretch up to 30 years, lenders not only check your earnings but also keep an eye on your employment status. So, banks or housing finance companies (HFCs) would ideally lend to permanent employees having some experience behind them.
But given the work dynamics that are in place these days, a lot of employees bears a contractual status. This could make you jump to the conclusion that these employees won’t get the home loan.
Well, in most cases, your conclusion would prove right but not in all. So, what are those circumstances that can enable the contractual employees to get a home loan in India? Read the post further to know the same.
Employees Who are Getting Their Contract Renewed Regularly
Employees are hired on contracts for specific periods, say 9 months or even a year. The joining letter of such employees often states that their contract can be renewed based on the performance delivered by them. Lending institutions thus offer home loans to those employees whose contracts are getting renewed on a regular basis.
So, if the work experience of 3 years shows a contract renewal of 5 times in every 6 months, banks or HFCs could consider lending the concerned employees. Regular renewal instills confidence amongst lenders about your job stability, which results in loans for contractual employees.
Contractual Employees Must Have Worked for a Reasonably Long Period
Lenders would also like to see the length of your contractual employment to be reasonably long, say 2-4 years, before approving the home loan application. With the length of employment being long, lenders get assured of your job stability.
Contractual Employees Must be Earning More Than Enough to Pay Off the Proposed Home Loan EMI
The income is a vital factor to anyone paying off the Equated Monthly Installment (EMI) with ease and more so in home loans, where most would be applying for a minimum of ₹30-40 lakhs given the price of the property these days. Ideally, lenders like to see the proposed EMI not constituting more than 60% of the net monthly income (NMI). As it’s about offering loans to the contractual workforce, lenders may want the EMI to be within 50% of the NMI or even lesser.
To know exactly the proportion of EMI to NMI, you must check the Home Loan EMI Calculator. The calculator works on three factors – interest rate, loan amount and tenure. The average home loan interest rates range from 8.60%-9.65% per annum. Further, the rates are segregated according to the quantum of finance. Invariably, the rates are segregated in three parts – for loans up to ₹30 lakhs, above ₹30 lakhs-75 lakhs and above ₹75 lakhs. The rates increase with the increase in the loan amount.
So, if you have zeroed on a property where you would want a loan of ₹40 lakhs, you could be offered an interest rate of 8.75%-9.25% in the present time. In that case, the EMI would be ₹35,348 for a period of 20 years. Now, check the proportion of EMI to NMI and see whether the former is within 50% of the latter or not. If not, then the lender may ask you to extend the tenure so that you can conform to the EMI/NMI proportion.