How Housing Finance Companies Sanction home loan to Salaried person?

CA Vishal Ghadigaonkar | Last updated: 05 November 2020

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Quick Summary

Housing Finance Companies (HFCs) assess salaried individuals for home loans by collecting essential documents like salary slips, bank statements, and identity proofs. They then calculate eligibility by considering your average monthly income, deducting existing financial obligations and a factor for dependent family members. The remaining income, after accounting for Monthly Loan Servicing Charges (MLSC), determines your loan eligibility amount.

Due to the rapid Growth & increasing Competition in the Housing Finance Sector, the chances of Procedural Lapses have also been increasing. The Probability of misuse & taking of advantage of the System by unscrupulous elements have also risen. It is very important to take urgent remedial & proactive steps so that incidents of Defaults or other Frauds taking place can be avoided.

The Housing Finance companies calculate the eligibility of Salaried person as follows.

A. Document collection from Salaried Person

Salary Slip for the last 6 months
Bank statement where salary is credited for last six 6 months
Form No.16 for last two years and 26 AS statement for 2 Years
PAN Card for identity proof
Address proof like Aadhar card , Driving License, Passport, Voter ID etc.
Details of existing loans taken and its repayment / any obligations, if any
Appointment letter/Increment letter/CTC
Confirmation letter
Copies for other bank account if any for last 6 months
Photographs of the applicant
Initial Processing Fees
Retirement Age Letter

Salaried Home Loan Eligibility: How HFCs Calculate

B. Eligibility Calculation based on documents collected.

Take last 6-month average salary income based on salary slips. Here you get average salary income per month
Less : Existing obligation as mentioned in point 6 above on monthly basis
Less : Dependent Family Members factors ( Note 1)
Step 1-2-3 = Actual Income Per Month
Actual Income Per Month * MLSC @ 65% (Note 2)
The figure as per step 5 / Factoring (Note 3)
The derived figure in step 6 should multiple by Rs 1 Lac to get eligibility amount in absolute figures

Note 1: The Housing finance now a days also consider the impact of no of family members dependent on home loan applicant. The amount of deduction is depending on case to case basis. Generally, it is between Rs 1500 to Rs 2500 per family member.

Note 2: MLSC (Monthly Loan Servicing Charges) is generally expressed as a Percentage. This Percentage denotes the portion of the Monthly Income that must be spared by the Borrower towards the Housing Loan Repayment. At the same time, it should also be ensured that sufficient Residual Income is left to meet the Expenses of the Family, considering the Family Size.

In above calculation we have consider MLSC@ 65% means remaining 35% will be left to meet the expenses of the family. Some housing finance companies may consider MLSC @50%. The higher MLSC % will give higher eligibility of home loan to applicant.

Note 3: Factoring is the result of Loan, Rate of Interest (ROI) and Tenure of loan. It is calculated for 1 Lakh basis by applying ROI and Tenure. It is easily available on EMI Calculator.

The Golden Rule

The home loan eligibility of the person will increase if his age is below 30 Years. The maximum tenure given by housing finance companies is 30 Years for Salaried employee. So, if your age is 30 Years then in such case you will get tenure till the age of retirement which is generally 58 Years and you will get tenure of 28 Years only. Further due to maximum tenure of home loan the monthly EMI burden is also reduced to the maximum extent. The rule is Higher the tenure, Lower the EMI burden.

I hope the above process will help you to calculate self-eligibility of home loan if you are a salaried person.

FAQ :

Salaried individuals need to provide salary slips for the last 6 months, bank statements showing salary credits for the last 6 months, Form 16 for the last two years, Form 26 AS for two years, PAN card, address proof, details of existing loans, appointment/increment letters, and recent photographs.

The average monthly income is calculated by taking the average of the salary amounts shown on your salary slips for the last six months.

Existing obligations refer to any current loans or financial commitments you have, which are deducted from your monthly income before calculating your home loan eligibility.

MLSC (Monthly Loan Servicing Charges) is the percentage of your monthly income that must be allocated for loan repayment. A higher MLSC percentage, such as 65%, means more of your income is available for loan repayment, potentially increasing your eligibility. The remaining income must be sufficient for family expenses.

A longer loan tenure generally reduces the monthly EMI burden. For salaried individuals, the maximum tenure is typically 30 years, and eligibility calculations consider the tenure up to your retirement age.