Lending institutions scramble for customers to increase their market share. They offer interest rate benefits, propose lower financial charges, and promise fee-waivers; the bank representative goes all out to woo his Home loan customer. Home loan representatives also promise to Get Home Loan disbursement up to the maximum limit, i.e. like 85% of the property value offered under HDFC Home Loan.
In case you think that this happens with every customer that approaches the bank for a home loan deal, the answer is a straightforward ‘NO’. The special gesture is only for a selected few – the salaried individuals.
But why do salaried individuals get higher home loans than self-employed?
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Every lending institution has loan checks in place. These help the lending institution to gauge the loan repayment capacity of the borrower. Thus factors like monthly income, customer’s current age, credit score, other ongoing loans and EMIs, etc., are closely assessed to check the home loan eligibility of the prospective home loan customer. It is here that the salaried individuals win over the self-employed professionals and non-professionals and are judged as the most preferred client, hence the preferential treatment.
The evident reasons for the same are
Fixed Income
Salaried employees receive a fixed income every month. Thus they are less prone to defaults that occur due to income volatility. In addition to fixed income, the disposable income of the salaried individual also increases over the years as his gross salary increases owing to annual increments and bonuses. Banks, therefore, consider lending home loans to these customers as they are relatively less risky.
Long Productive Years
Home loans are high-value loans and, therefore, long-term loans. Their repayment runs in years, sometimes up to 30 years, as in HDFC home loan. The economic trends cannot be predicted over such long time durations. The salaried employees thus fit the long-term home loan bill better because they have a relatively safe and steady working life and are not greatly impacted even by the economic downtrends.
Higher Home Loan Amount
Banks fund up to 85%-90% of the property cost as a home loan. With property rates soaring, the absolute home loan amount availed too gets exorbitantly high. Banks thus prefer customers who have a good credit score and decent but regular income. Salaried employees who have a healthy financial history and an ongoing job thus become the obvious choice.
Post Retirement Benefits and Monthly Pension
Salaried employees, especially those who retire from government positions, receive a lump sum amount as retirement benefits. The borrower can use these proceeds to prepay the home loan. Besides this, they continue to receive monetary benefits as a monthly pension. These monthly inflows can be diverted towards repayment of EMIs on the balance of outstanding home loans.
More Inclined to Budgeting
Fixed and regular monthly income, by default, makes a salaried individual more inclined to budgeting. They have a fixed spending pattern along with a fixed saving pattern. An out-of queue outflow is pre-planned beforehand. When taking a home loan, such individuals, with the help of a home loan EMI calculator, ascertain their EMI outflow beforehand. Thus, they tweak their budget accordingly to accommodate the additional outflow. The meticulous handling of the increased burden does not mount financial stress and therefore reduces the chances of loan defaults.
Salary Account In Same Bank
Leading banks have tie-ups with government and private companies and are authorised for their monthly salary disbursements. Invariably salaried employees prefer the same bank where they have their salary account for all further investments and loans. Additionally, they generally use the credit cards issued by the same bank. This makes the bank aware of all the assets and liabilities of the customer. While the banks are aware of the creditworthiness of its customer and feel safe in advancing home loans even with customised features, the customer also feels secure as he is saved from all the hassles of documentation and loan processing.
Given the advantages mentioned above over self-employed customers, salaried customers invariably get a home loan at a rate of interest up to 0.50% lower than that offered to self-employed individuals.
Eligibility Conditions Of A Salaried Individual
Banks offer a range of benefits to salaried individuals who apply for home loans. But to avail of these benefits, a salaried individual also has to meet the prerequisite of all the home loan eligibility conditions. HDFC home loans are the most sought after. It is one of the best and the most preferred home loan lenders in the Indian market. To qualify for an HDFC home loan, a salaried individual has to meet the following conditions:
- Indian Citizenship
- Aged above 24 years at the time of commencement of loan, up to 60 years at the time of loan maturity
- The minimum salary is drawn per month Rs. 10,000
- Employment Contract or Appointment Letter from current employer (in case the current job is less than a year old).
- Permanent service in Central/State government companies or reputed private sector company
Salaried individuals who apply for HDFC home loans can avail of home loans at interest rates as low as 6.80% p.a. Women applicants get a further advantage of 0.05% p.a.
A fee of up to 0.50% of the loan amount or Rs. 3000 whichever is higher (plus applicable taxes) is charged as a loan processing charge from salaried individuals. The further advantage that salaried individuals enjoy by applying for HDFC home loans is the option to choose between the five home loan repayment methods. These include:
- Set Up Repayment Facility (SURF)
- Flexible Loan Instalment Plan (FLIP)
- Tranche Based EMI
- Accelerated Repayment Scheme
- Telescopic Repayment Option
Conclusion
Home loans provide the required funds to salaried employees and non-salaried individuals, allowing them to build their dream house. However, salaried individuals always get a higher loan amount if they fulfil all the eligibility conditions compared to non-salaried individuals. It also creates a win-win situation for the lending company. They, too, are keen on giving loans to salaried employees given their fixed and regular income with lower risk of defaults and delayed payments resulting from income fluctuations and financial losses.
Though salaried individuals have a slight advantage over self-employed individuals when applying for a home loan, earnings and creditworthiness of the applicant by far remain the critical criteria to get a home loan under any category.
