Monday, 28 January 2013

How Banks really calculate your Home Loan Eligibility


How Banks really calculate your Home Loan Eligibility

A very friendly executive from your Bank has just promised you a Home Loan, based on your salary and other facts, probably you have an account with the Bank or maybe it was just a cold call. You are happy, you've been promised an amount you require at competitive interest rates, already dreaming about that dream home, are we?

Wait right there, I suggest you the read this article before someone has a chance to spoil that Dream Home of yours…

Scenario
  • You have a monthly in-hand (take home) salary as Rs 50,000 and you are looking for a home loan of about Rs 30 lakh.
  • Your gross monthly income might be much more than Rs 50,000 per month but that does not matter while calculating the net income.
  • You don't have any other loan like car or personal loan on your name.
  • Bank rules say that you are eligible to get 60 times your monthly net income as loan.
Well, all sounds good till the time you are talking to your bank executive or an agent over phone for your eligibility. They ask you for your net income, you answer Rs 50,000 per month and they immediately say that you are eligible for a loan that is 60 times your monthly net income, that is, Rs 30 lakh. You are excited that everything is going as per your expectations and think you will get the amount you were looking for.
But things change dramatically when you have actually applied for loan by submitting your documents along with salary slips and have paid the loan processing fees. The bank will call you and evaluate your loan eligibility once again and this time it will come out to be much less than what was communicated to you over phone.

You start wondering about what has changed? You salary slips still show the same Rs 50,000 as net income and you don't have any other loan. Then how come the eligibility has come down?
Is the bank not interested in giving out that much loan or the rule of 60 times your net income is just a marketing gimmick?

The CATCH in calculating your NET INCOME.

The catch could be anything from a bank's marketing strategy to attract customers or your low credit score. But most of the times, it is your salary components, which play a spoilsport.

You might be getting a net income of Rs 50,000 per month, but there are some components that may not qualify for adding to your home loan eligibility.

Normally, a salary is a total of following components:
  • Basic salary
  • HRA (House rent allowance)
  • LTA (Leave travel allowance)
  • Medical allowance
  • Performance bonus
  • Conveyance allowance
  • Special allowance: It could have different names in different companies like city compensatory allowance etc.
  • Food coupons
  • PF (provident fund) shown as a deduction in salary slip
  • Any other allowance
A normal income slip (one-month) in our example might look like this


Now, the components, which most banks do NOT consider while calculating your net income, are LTA and medical allowances.

So, even though your salary slips show Rs 50,000 as net income, bank will NOT consider LTA and medical allowance as money which would be available to you for spending on loans, that is, they believe that you will actually spend these LTA and medical allowances on the activities which they are paid for.

Hence, what bank will do is, they will deduct this amount from your payslip and arrive at your net income as follows:
Now, if you calculate your eligibility will be equal to Rs 27, 15,000 (45,250 X 60)
Which is lower than earlier eligibility by about 10 per cent, that is, Rs 2, 85,000?

Now, if you had planned your finances keeping in mind that you would get a loan of Rs 30 lakh by your bank and manage other money yourself, you now would need to pool in Rs 2, 85,000 more.



Use Moneyfinder to avoid all these hassles, Visit us on www.moneyfinder.in or call us on 91 8355 955 000.

Disclaimer - All information in this article is sourced from various websites. This article is compiled by team at Moneyfinder and any content is not owned by us. This information is true as on 28th January 2013.

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