The answer to how much loan can I get from the bank is to multiply your net salary by 60 to reach the maximum amount that you can get.
- Home Loan: 60 times monthly In-hand Salary
- Car Loan: 30 times monthly In-hand Pay
Both public sector government bank like SBI, PNB, and private sector bank like ICICI, HDFC follow these rules.
Private banks are a bit flexible and may increase the total amount based on your employer and your income patterns.
This article will discuss:
Home loan Eligibility Calculator
Banks can finance home mortgages for salaried professionals up-to 60 times monthly NET pay.
This amount can reduce if:
- If you have more than 5 credit cards
- Bad credit history
- Employer is not a known company
- Other active loans like Car or personal loans
Here is an example of Home finance eligibility based on salary package (CTC) of 7,85,000 per annum and in hand salary of 61,850 per month for both government and private bank:
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- Monthly in-hand (take-home or net pay) salary: INR 50k.
- Looking for 30 lakhs finance. Real Estate property cost: 40 lakh.
- Gross monthly income might be much more than INR 50,000 per month. Bank only considers your in-hand salary. Calculate your in-hand salary.
- You don’t have any other personal or car loan on your name. You do have 1 credit card with a credit limit of INR 10k.
- Bank rule: Eligible to get 60 times your monthly NET pay.
All sounds good if you ask “How much can I qualify for“. Bank’s answer is “you are pre-approved for 30 lakhs“.
Don’t get excited about ‘how much loan will I get approved for‘ as the final sanctioned amount will be lower.
The bank will evaluate your eligibility once again after you apply and have paid the processing fees. This time, the total eligibility will be much less than 60 times net pay.
NET Salary Calculation
Assuming bank played no tricks and your credit score is ‘Good or excellent‘, it is definitely your salary component that’s reducing your over-all pre-approved amount.
A standard pay slip (one month) in our example:
|Basic Salary||15,000||Provident Fund||1,800|
|Conveyance Allowance||800||Income Tax||1250|
|NET pay||50,000 (53,050 – 3,050)|
The LTA and Medical allowances are not considered part of your in-hand income by most government banks like SBI specifically for housing loans.
The result is your decreased qualification as shown here:
|Net pay as per salary slip :||50,000|
|– LTA amount||3,500|
|– Medical Allowance||1,250|
|New Net Pay||45,250|
Now, calculate your NEW eligibility = 27,15,000 (45250 * 60)
Which is lower than earlier eligibility by about 10% i.e. 2,85,000.
If you had planned your finances keeping in mind that you would get a loan of 30 lakhs by the bank and manage other money yourself, you now would need to pool in 2,85,000 more.
The amount of home loan you can get approved for is 60 times your monthly in-hand salary.
Government banks calculate the net pay differently than private sector banks in India.
The car loan calculation is also based on your monthly net pay.
It is usually lesser than the home loan and you should multiply your net pay with 30 to reach car loan eligibility.
For example, if your monthly in-hand salary is 20,000, then you can get a car loan of about 6 lakhs provided you have no other expenses or dependents to take care of.
Home Loan Amount Calculation
The final approved or sanctioned amount would be lesser if you have multiple credit cards, rental expense, car or personal loan reported on your credit history report:
#1 Credit card minimum balances
If you shop around using credit cards, the total of ‘minimum payment‘ each month on all cards is REQUIRED to be deducted from your NET pay to reach the loan eligibility.
This is generally 10% of your total credit limit. In our example, this comes out to be INR 1,000 per month.
Now, reduce your NET pay (45,250) by another 1k to reach at 44,250.
#2 Car, Personal, Gold loan
If you have an existing car, personal or gold loan, do deduct the monthly EMI amount from your net pay. In our case, we have assumed to have none.
#3 Home Rent
If you are trying to take a home loan for an ‘under construction’ property, the bank will reduce the final amount by the rent you pay monthly.
We have assumed to be buying ready to move in home and hence no more deductions.
At this point, you should have the NET pay (44,250) that the bank will consider for finding your maximum loan qualification.
To answer your question: ‘How much loan will I get approved for’, simply multiply 44,250 by 60.
Word Of Caution
The loan eligibility calculator is with you if you have read the above information. Simply multiply the net pay and you reach a maximum amount.
I hope you would have understood the concept. I would urge you to keep these calculations in mind and do not blindly believe what bank sales executive commits, as he is more interested in bringing a client to the bank.
You will get to know these details only when you would have actually paid the non-refundable processing fees of the bank. You would have no option but to go on with it and find out other ways of financing the deficit amount.