When you are planning to purchase a house using home financing, two things will bother you the most. First is that whether you will get a home loan or not. Second is whether you can afford to pay the loan EMIs or not.
So ideally, the question boils down to your Home Loan Affordability.
There is some help at hand for this question. Lenders themselves don’t lend to people whose EMI-to-Income ratio exceeds 40% or will exceed 40% after they approve the loan.
So for example, let say you have an income of Rs 1 lac. Now according to that monthly cap of 40%, your total monthly EMIs cannot exceed 40% of your income, i.e. 40% of Rs 1 lac, which is Rs 40,000. Now if you already have a personal loan where you are paying Rs 8000 every month, your remaining EMI capacity for the month is Rs 32,000 (= Rs 40,000 – Rs 8000). So technically, you will only get a home loan where the EMI doesn’t exceed Rs 32,000.
But remember that this is a lender specified limit. You are in no way being forced to borrow a loan that you cannot repay, even if it is within your 40% criteria. So if we were to use the pervious example and you think it is tough for you to pay Rs 40,000 EMI, then do not hesitate in asking your lender to reduce your EMI. This is possible in following ways:
- Increase the loan tenure (most probable)
- Decrease the interest rate (least probable)
- Lower your loan requirement (might not be possible if you don’t have surplus money to increase your downpayment)
This is how lenders judge your Home Loan EMI affordability. The idea is that lenders want to reduce the risk of default. They don’t want to lend you the amount where you will find it tough to repay the loan. So in a way, this restriction is helpful for borrowers too.