- The acceptance of your home loan application depends on your salary to a great extent
- Let’s check out here how the minimum salary requirement differs from one situation to another
Income is the point where lenders can approve or reject home loan applications. It indicates greatly about your ability to repay the home loan; the greater the income the more repayment capabilities you will have and vice versa. Although lenders don’t state clearly the minimum salary requirement to get a home loan as they do in the case of other loans such as a personal loan, you should earn enough to pay the proposed home loan amount. Lenders will assess your minimum salary requirement based on the loan amount, the savings you have for a down payment, etc. In this post, we will help you understand these aspects in detail. So, keep reading!
How Does the Loan Amount Influence the Minimum Salary Requirement?
To ensure you buy your dream home, you need to wake up early and do the required homework in terms of searching out the property that remains within your budget and gives you the freedom you look for in a home. If you know that a home loan is financed to 75%-90% of the property value, you can accumulate the required sum for a down payment (10%-25%) on time. This can give you an idea of the loan amount you could require to buy a home. The proposed home loan EMI should remain within 50-60% of your net monthly salary, provided you do not have any other loan running in your name. In case you have other loan obligations, the lender would like the ratio to be lower from 50-60% as stated above. Based on these, the minimum salary requirement will vary. Let’s consider an example to understand it better.
Example – Sohan Gupta works in a pharmaceutical firm as a Senior Manager and earns a salary of INR 70,000 per month. He doesn’t have any other loan obligation. So, the lender can finance him the loan amount that keeps the EMI to around INR 35,000-40,000. The loan amount, in this case, can be upto INR 45-50 lakh at an assumed interest rate of 7.50% for 20 years. In case he had an existing loan obligation of say INR 10,000, the maximum EMI allowed would most likely have reduced to INR 25,000-30,000. Accordingly, the maximum loan amount would have reduced to around INR 35-40 lakh.
But How Can You Calculate the Proposed Home Loan EMI Before Taking a Loan?
It’s easy to do! The Home Loan EMI Calculator is available online, so you go there and compute the EMI. It works on three variables – Principal Loan Amount, Interest Rate and Tenure. Once you put all these three in the calculator, you will get to see the EMI amount. So, it is important to know the home loan interest rate movement and trends in recent times. If you take that into account, you will find the interest rate to be around 7%-8% per annum now. Keep experimenting with the values to see how much burden your salary can take.
What If the Lender Feels Your Salary is Not Sufficient to Pay the Proposed Home Loan EMI?
It can be a matter of disappointment for you and rightly so, given that you must have worked hard on your savings before applying for a home loan to buy your dream home. But it’s certainly not the end of the road! There are other ways by which you can buy a home. Check out the same below.
Make More Down Payment – You can meet the minimum salary requirements even when you pay more than the required down payment. What it does is reduce the home loan amount, which can further decrease the Equated Monthly Installment (EMI) to an extent that you can pay from the salary you earn.
Yes, you must have saved regularly to come to this point and you may not have any more in your kitty to pay the extra sum towards a down payment. In such a case, you can ask for that extra amount from your family or friends. We hope they don’t deny you that help!
Request the Lender to Increase the Tenure – It could be possible that the lender would have calculated your repayment estimates not on the basis of the maximum tenure that it may be offering otherwise. Maybe, your retirement age won’t have been that far at the time of loan application. And due to that, the lender would have rejected your home loan application citing the reason that you don’t have the minimum salary to pay the particular loan amount.
For example, if your age at the time of the home loan application is 40 years, you can’t get 30 years, the maximum that can be given to someone 10 years younger. The maximum tenure will most likely reduce to 20 years. But you have got the right to tell the lender to increase the tenure by some years. You can submit some security such as a fixed deposit to the lender. This will make the lender think about it, and hopefully, it will agree to extend the tenure.
Think of Using Your Provident Fund Surplus – You can even use your Employees Provident Fund to purchase a home. For a home purchase, you can withdraw from your provident fund account to the tune of 36 months’ wages and dearness allowance or the EPF contribution, whichever is lower. However, you must have worked for a minimum of 5 years to withdraw from your EPF for the said purpose.
Add a Co-applicant – The criterion of minimum salary can be met when you have an earning co-applicant to your home loan. The EMI on this home loan will be shared between you and the co-applicant, who can be your family members. With the EMI getting shared, your individual burden will also reduce.
Search for a Home Available at a Lower Price – If all the previous options don’t work in your case, you can use this last option which will almost guarantee you a home. As your minimum salary is not meeting the home loan payment obligations, it will be good to buy a home that comes at a lesser price. This will bring down the loan amount required to buy a home. With that, the EMI will also come down and make the lender confident of lending you the required amount.