20 SEPTEMBER, 2022

Applicants are eligible to get a home loan that is 60x their monthly income. Low salary home loan at the lending institution's discretion depends upon the applicant's profile and eligibility. No minimum income level is mandated to apply for a home loan, and even applicants with zero income but with a good credit score and backing by guarantors can avail of a home loan in India. However, the amount of the loan may vary based on one's application.

In addition to this, the government of India offers different loan subsidies for people with low-income levels to avail of a home loan. The government introduced these schemes to empower the lower and middle-class groups to build or purchase a home for themselves.

How to apply and get approved for Home Loan with a Low Salary?

There are multiple lending institutions spread across the country that offer home loans under different terms and conditions. Among these, there are a lot of options available for a low salary home loan. Some of these options, including the government subsidies and their application requirement, are elaborated below:

1. Strong application: Applicants with low personal or family income can avail of a home loan if their application meets the lending institution's requirements. The objective of the lending institution is to evaluate the applicants' capacity and capability to repay the loan, which is analyzed based on various documents such as proof of income, valid address, identification document, etc.

2. Co-applicant: An excellent way to apply for a home loan is by adding a co-applicant. This gives an edge to individuals who are at low-income levels since the loan disbursement amount is calculated on the combined income of the co-applicants, and that can increase the number. It is even beneficial if one of the co-applicants is a woman since most lending institutions offer interest rate discounts to female applicants.

3. Credit score: Individuals or co-applicants need to maintain a healthy credit score by ensuring that they do not have any default payments from the past. In addition, it is even beneficial if there are outstanding loans or credits in their name. A healthy credit score can also enable a higher amount of home loans.

4. Government subsidies: The Indian government has launched various subsidies to provide affordable housing loans for people with lower income levels. The "Pradhan Mantri Awas Yojana - Housing for All" was launched by the government of India to offer a home loan interest subsidy to anyone who meets the criteria. This subsidy was provided under the Credit Linked Subsidy Scheme (CLSS). These subsidies cater to different classes, from Economically Weak Sections (EWS) to Low Income Groups (LIG).

a. Economically Weak Sections (EWS): For households where the family's annual income is up to 3 lacs. The maximum subsidy allowed in this category is Rs.2.67 lacs. The maximum repayment tenure offered under this category is of 20 years. The applicant under this category can seek a loan for a property with a carpet area of 30 square meters.

b. Lower Income Group (LIG): This category is for households where the family's annual income is up to 6 lacs. The maximum subsidy allowed in this category is Rs.2.67 lacs. The maximum repayment tenure offered under this category is of 20 years. The applicant under this category can seek a loan for a property with a carpet area of 60 square meters.

c. Middle Income Group - I (MIG - I): Annual household income between 6 lacs to 12 lacs falls under this category. The maximum subsidy allowed in this category is Rs.2.35 lacs. The maximum repayment tenure offered under this category is 20 years, and the applicants can seek a loan for a property with a carpet area of up to 160 square meters.

d. Middle Income Group – II (MIG – II): The government categorizes annual family income of 12 lacs to 18 lacs under this. The maximum subsidy allowed for this category is Rs.2.3 lacs. The maximum repayment tenure offered under this category is of 20 years. The applicant under this category can seek a loan for a property with a carpet area of up to 200 square meters.

5. Subsidies by state governments: In addition to the subsidies provided by the central government, there are many subsidies and low income home loans offered by the local state governments. However, one must note that they cannot avail both of these subsidies at once and must choose wisely based on what meets their requirements. The official website of the state governments lists the various schemes run by them for the applicants to choose from.

These subsidies can be availed by Indians who can validate the category they fall under. These subsidies are then made applicable to their existing loans for them to earn the benefits. The Indian government also mandates these subsidies to only apply to the first home purchase. The subsidies cannot be availed more than once by the same applicant.

Low Income Home Improvement Loans

Home loans are not restricted to purchasing a new home but also cater to the requirements of renovating the existing home or carrying out other improvements. A home loan to renovate or fix the existing home is usually less than a requirement for purchasing a new property. Multiple lending institutions offer home improvement grants to the public of India. These loans are also extended to people with low-income levels. One must follow the same best practices of providing strong documentation, adding a co-applicant, and maintaining a good credit score.

Home loan tax benefit

The government of India allows the borrowers to avail of certain tax benefits on their home loans. The per annum interest paid by the borrowers while repaying their loans is eligible for a tax exemption. The borrowers should produce the documents required by the Income Tax Department of India to avail of these benefits. The lending institutions are usually able to provide the necessary documents at the request of the applicants.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.

Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.