Understanding CTC And Its Impact On Home Loan Eligibility
How do you qualify for a Home Loan? Well, your Home Loan eligibility depends on several factors, including your CTC.
For any individual, buying a house is a way to ensure well-being and attain stability. However, most salaried employees are unable to save enough for a home purchase until their middle age or even later. So, how can they purchase their dream home earlier? Of course, with a Home Loan. The lender pays the property's price on your behalf, and you pay the borrowed amount with interest to the lender in EMIs.
How do you qualify for a Home Loan? Well, your Home Loan eligibility depends on several factors, including your CTC. The following sections will explore CTC meaning and its impact on your loan eligibility.
What is CTC?
CTC stands for Cost to Company, the total expenditure your employer incurs after employing you. It includes both financial and non-financial perquisites, such as dearness allowance, basic salary, training costs, conveyance allowance, medical reimbursements, transportation allowance, house rent allowance, utility bills, leave travel allowance, etc.
When added together, these components make for an impressive salary package. However, remember that you do not receive the entire amount each month. You can utilize some allowances only under certain circumstances, while others go towards your savings and pension. Therefore, lenders determine your Home Loan eligibility based on your monthly take-home salary rather than your CTC.
Take-home salary is the portion of CTC you actually receive in your salary account after all taxes and deductions. Therefore, it is the actual amount you can spend on your financial obligations. Before applying for housing finance, understand the CTC meaning and consider your take-home salary to determine your eligibility and repayment capacity.
Impact of CTC on Your Home Loan Eligibility
Lending institutions consider several factors when determining your Home Loan eligibility, including your age, educational qualifications, work experience, city of residence, credit history, existing obligations, and monthly in-hand salary. The higher your salary, the better your loan eligibility. Your CTC affects your eligibility in the following ways:
- Loan Amount: The loan provider will use a simple formula to calculate loan eligibility. It includes multiplying the monthly in-hand salary by a factor. For instance, if they use 60 as the sector, you may get up to 60 times your income as housing finance. That means the higher the salary, the bigger the loan amount you may borrow.
- Repayment Tenure: While the maximum Home Loan repayment tenure can be up to 20 years, your CTC impacts your choice. The higher the CTC, the higher your in-hand salary and the bigger EMI you can afford each month. Therefore, you can opt for a shorter loan tenure to become debt-free sooner if you have sufficient income.
- EMI Repayment Capacity: Lenders calculate your EMI affordability based on your CTC. With a higher salary, the lender may offer a longer Home Loan repayment tenure. It reduces the EMI amount, keeping them easily affordable each month. However, remember that most lenders expect the repayment term to end before retirement.
- Interest Rate: The home loan interest rate you receive has a direct link to your monthly income. Sufficient income means you have more disposable income to spare and can easily afford EMI payments. Consequently, it reduces your risk of loan default and attracts lower interest rates from Home Loan providers. Most lenders already prefer salaried applicants with good CTC by offering them lower interest rates.
- Processing Time: Salaried applicants with a good CTC usually get their loan applications approved quickly. A regular and fixed income source allows lenders to verify details quickly, reducing the processing time required for Home Loan approval. Simply provide your age proof, income proof, repayment proof, property proof, degree certificate, bank statements, and passbook copy to apply.
- Financial Obligations: A higher salary will automatically enhance your EMI affordability and reduce your DTI ratio, thus boosting your eligibility. With low financial obligations, you can borrow a higher loan amount and choose a shorter tenure with bigger EMIs to repay without hassle.
Since CTC is an important factor determining your Home Loan eligibility, understand CTC meaning carefully and apply for a loan according to your in-hand salary. Now that you know how CTC impacts your Home Loan amount, interest rate, repayment tenure, and other factors, work harder to get a better CTC before applying for a Home Loan.
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