ATM :: Considering a home loan? First know how much you can borrow

In addition to your income multiple factors such as loan to value ratio, your retirement age, your employer’s profile and your co-borrower’s profile determine the amount of money to be lent to you.


Traditionally Dussehra is the beginning of the harvest season and many associate beginning of non-farm activities with this auspicious occasion, also known as Vijayadashami. Beginning construction of a new house was one of the important non-farm activities for most of our ancestors. And many still follow it. Of course, barring a few, most of us buy our dream homes from developers and Dussehra is a good day to begin your home buying process.

Buying the first dream home is a big moment for all of us and involves a lot of planning and euphoria. Yet, it can be taxing as a lot of steps are involved even after identifying our dream house, especially as it involves dependence on a home loan as well. After all, it is the lender who is going to decide how much loan amount you can borrow and therefore, it is advisable to get a pre-approved home loan in hand and then finalise the property.

Buying a home is an expensive yet a rewarding affair as getting a home loan sanctioned can be a daunting task. A borrower cannot simply walk in and request a loan amount and obtain it unless he/she has made sure that he is making enough money to borrow that amount from the lender. The capability to get the right loan amount at the right price is crucial to buying a home and how much loan amount one can borrow can be analyzed before one even begins to consider talking to a lender. There are many factors that lenders consider to determine the amount an applicant is capable of borrowing. Unfortunately, it is not based on how well a borrower thinks he/she can handle the funds. Instead, it all depends on factors regarding the borrower’s financial situation. So before making a decision to acquire a property and diving into the process of getting a home loan, it’s important to consider some of the factors that have a direct impact on the amount of home loan you are eligible for:

1.Take home salary: Home loans outline a major chunk of debt for a person and it becomes very important to understand the factors which decide how much home loan you can get. Your monthly salary is perhaps the most important factor that determines your home loan eligibility because the higher your income, the higher will be your chances of paying the liability back to the lender. The lenders generally give a multiplier of 50-60 % on the take home salary to determine the repayment capacity of the borrower.

2.Loan to Value (LTV) ratio: Though your salary may support a big home loan, loan to value ratio may pull down the actual loan the lender is willing to offer you. Loan-to-value is used to calculate the maximum borrowable loan amount for any loan applicant based on the value of the property in question. While the borrower’s income plays a key role in determining the loan approval or rejection, LTV also plays a crucial role in the disbursement stage of loan processing. The value of the property will be assessed by the lender, based on the market value of properties in that area.

3.Existing loans or monthly outflows of borrowers: Once a borrower’s eligibility for the home loan is determined on the basis of one’s monthly salary, lenders will further securitize his/her bank statements and savings account that will reveal the monthly expenses and any other outflow towards any loans or other regular outflows. The same is deducted from the repayment capacity of the borrower to determine the net payment capacity of the customer. Usually, the expenses and other loan payments or outflows should not exceed 55-60% of the monthly income. If this is higher, the eligibility goes down.

4.Retirement age of the borrower: Age is an important consideration for a home loan application and the quantum of the loan. Since 60 is the age of retirement at most companies, it is also the age limit for repayment of a home loan. Lenders determine the loan amount on the basis of the tenure of repayment. Keeping in mind the other monthly payments of a borrower, lenders offer high loan amount considering whether the borrower has the longest possible tenure to be able to pay the home loan EMI comfortably.

5.Co-borrower profile: A joint home loan also allows the loan amount eligibility to go up substantially, which might even help in buying a bigger or better house. The lenders will be ready to offer higher loan amounts by considering the income of all the applicants if one opts for a joint home loan. The reason for it is that the borrowers’ repayment capacity increases and there is more than one person to repay this loan. How much loan eligibility increases depends on the income of the co-applicant. Hence, the lenders would need the profile of the co-borrower the profile wherein documents like the Permanent Account Number (PAN) card copy, address proof, income proof, bank statements and credentials relating to the property must be submitted for getting the loan processed. It is to be noted that many lenders scrutinize the relationships between co-borrowers to determine the bond between them. They may not accept co-borrowers who are brothers, recently-married couples, etc. If it’s a joint home loan account one is opting for, it is advisable to add a younger co-borrower for the home loan. For example, spouse, son, daughter etc, who has visible earnings.

6.Employer’s Profile: The employer also carries a strong weight as lenders have special schemes at times for employees of certain premier organizations. This is as per the policy of the lender but better rates and fees are available for certain employers so checking with the prospective lender will be a good thing to do.

Being hammered back for a home loan can be extremely discouraging but fortunately getting on top of your debt and paying off any owed balances will help you get back on track and closer to your dream of home ownership. Meanwhile, there is no hard and fast rule on how much you should borrow, but you must simply follow a general theory wherein your home loan repayments must not exceed 50% of your gross income.

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