If you are earning ₹40,000 per month and planning to buy a house, you might be wondering how much home loan you can get. In India, banks and financial institutions decide your home loan amount based on many factors like your salary, age, job stability, credit score, and other expenses. This article will explain in simple Indian English how much home loan you can expect, how banks calculate it, and what you need to know to get the best loan.
1. How Do Banks Decide Your Home Loan Amount?
Banks don’t give you a loan based on your full salary. They look at your eligibility using some important rules:
- Fixed Obligation to Income Ratio (FOIR): This is a fancy term that means how much of your salary is already spent on EMIs (like car loans, personal loans, or credit card payments) and other fixed expenses. Banks usually allow 50–60% of your salary to go toward all EMIs, including the new home loan EMI.
- Loan-to-Value Ratio (LTV): Banks don’t give you a loan for the full cost of the house. They usually lend 75–90% of the property’s value. For example, if the house costs ₹30 lakh, you might get a loan of ₹22.5–27 lakh, and you need to pay the rest (called a down payment).
- Your Age: Younger people can get longer loan tenures (like 20–30 years), which means lower EMIs and a higher loan amount. If you are older, the tenure might be shorter, so the loan amount could be less.
- Credit Score: This is a number (between 300 and 900) that shows how good you are at repaying loans. A score above 750 is good and helps you get a bigger loan with a lower interest rate.
- Job Stability: If you have a stable job (like a government job or working in a big company), banks trust you more and may offer a higher loan.
2. How Much Loan Can You Get on ₹40,000 Salary?
To calculate how much home loan you can get, let’s break it down step-by-step:
Step 1: Calculate Your Take-Home Salary
Your take-home salary is what you get after deductions like provident fund (PF), taxes, and other things. Let’s assume your take-home salary is around ₹35,000 after all deductions.
Step 2: Check How Much EMI You Can Pay
Banks usually allow 50–60% of your take-home salary for EMIs. Let’s take 50% for safety:
- 50% of ₹35,000 = ₹17,500
This means you can pay up to ₹17,500 per month as EMI for your home loan.
Step 3: Calculate Loan Amount Based on EMI
The loan amount depends on:
- Your EMI (₹17,500 in this case)
- The interest rate (usually 8–10% per year for home loans)
- The loan tenure (how many years you will take to repay, usually 20–30 years)
Let’s assume:
- Interest rate = 8.5% per year
- Loan tenure = 20 years
Using a home loan EMI calculator (available on bank websites or apps), we can estimate:
- For an EMI of ₹17,500 per month, at 8.5% interest for 20 years, you can get a loan of around ₹20–22 lakh.
If you choose a 30-year tenure, the loan amount could go up to ₹25–27 lakh because the longer tenure reduces the monthly EMI, allowing you to borrow more.
Step 4: Factor in Down Payment
Banks will not give you a loan for the full house price. You need to pay 10–25% of the house cost as a down payment. For example:
- If the house costs ₹30 lakh and the bank gives you a ₹24 lakh loan (80% of the house value), you need to pay ₹6 lakh as a down payment.
So, with a ₹40,000 salary, you can aim for a house worth ₹25–30 lakh, depending on how much down payment you can arrange.
3. Example Calculation
Let’s make it clear with an example:
- Salary: ₹40,000 per month
- Take-home salary: ₹35,000 (after PF, taxes, etc.)
- EMI allowed: ₹17,500 (50% of take-home salary)
- Interest rate: 8.5%
- Loan tenure: 20 years
Using an EMI calculator:
- Loan amount = ₹21.5 lakh (approx.)
- EMI = ₹17,500 per month
If you stretch the tenure to 30 years:
- Loan amount = ₹26 lakh (approx.)
- EMI = ₹17,500 per month
Now, if the house costs ₹30 lakh:
- Loan = ₹24 lakh (80% of house value)
- Down payment = ₹6 lakh (20% of house value)
You need to have ₹6 lakh saved for the down payment, plus some extra money for registration, stamp duty, and other charges (around 5–7% of the house cost).
4. How to Increase Your Loan Amount?
If you want a bigger loan, here are some tips:
- Add a Co-applicant: If your spouse or parents are earning, you can add them as a co-applicant. Their income will increase the loan eligibility. For example, if your spouse earns ₹20,000, your combined eligibility could get you a loan of ₹30–35 lakh.
- Clear Other Loans: If you have a car loan or personal loan, try to pay it off. This reduces your FOIR and increases the EMI you can pay for the home loan.
- Improve Your Credit Score: Pay credit card bills on time, don’t take too many loans, and check your credit score regularly. A good score (above 750) can get you a bigger loan at a lower interest rate.
- Choose a Longer Tenure: A 30-year tenure means lower EMIs, so you can borrow more. But remember, longer tenures mean you pay more interest overall.
- Save for a Bigger Down Payment: If you can pay 20–30% of the house cost upfront, the bank will need to lend you less, and you can afford a more expensive house.
5. Things to Keep in Mind
- Interest Rates: Home loan interest rates can be fixed or floating. Floating rates change with the market, so your EMI might go up or down. Check with the bank what’s best for you.
- Processing Fees: Banks charge 0.5–1% of the loan amount as a processing fee. For a ₹20 lakh loan, this could be ₹10,000–20,000.
- Other Costs: Buying a house involves extra costs like stamp duty, registration, and legal fees. Keep ₹2–3 lakh aside for these.
- Job Security: If your job is not stable, banks might offer a smaller loan or higher interest rates.
- Prepayment: If you get extra money (like a bonus), you can prepay part of the loan to reduce interest. Check if your bank charges a fee for prepayment.
6. Which Banks Offer Home Loans?
Many banks and housing finance companies in India offer home loans. Some popular ones are:
- State Bank of India (SBI): Offers low interest rates (around 8–9%) and flexible tenures.
- HDFC Bank: Known for quick processing and good customer service.
- ICICI Bank: Offers competitive rates and online loan calculators.
- LIC Housing Finance: Good for salaried people with lower interest rates.
- Axis Bank: Offers loans with easy documentation.
Compare interest rates, processing fees, and customer reviews before choosing a bank. You can visit their websites or branches to check your eligibility.
7. Documents You Need
To apply for a home loan, you need:
- Identity Proof: Aadhaar card, PAN card, voter ID, or passport.
- Address Proof: Aadhaar card, utility bill, or rent agreement.
- Income Proof: Salary slips (last 3–6 months), bank statements (last 6 months), and Form 16 (for taxes).
- Property Documents: Sale agreement, property papers, and no-objection certificate (NOC) from the builder or society.
- Photographs: Passport-size photos.
Keep these ready to make the loan process faster.
8. Conclusion
With a ₹40,000 monthly salary, you can expect a home loan of around ₹20–26 lakh, depending on the interest rate and tenure. You can buy a house worth ₹25–30 lakh if you have ₹5–6 lakh for the down payment. To get a bigger loan, add a co-applicant, clear other loans, or save more for the down payment. Always compare banks, check your credit score, and plan your budget carefully to make sure you can pay the EMI without stress.
Buying a house is a big decision, so take your time, do your research, and talk to a bank or financial advisor if needed. Good luck with your dream home!