A home loan is an ideal financial solution to help individuals translate their dream of owning a house. Moreover, a credit option like this is a long-term financial commitment, which requires one to plan accordingly to avoid any problems in future.
In this regard, individuals must calculate home loan eligibility and understand the loan amount they are eligible for. It will help them to plan their repayment and manage their debt better in the long run..
How to calculate home loan eligibility?
Several financiers assess an individual’s eligibility for a home loan based on their income and expenses. Most financiers assume that 40% to 50% of their income covers the necessary household expenses. Accordingly, they will be left with 50% to 60% as surplus. Lenders consider this surplus amount as the maximum limit to compute borrowers’ repayment capacity. They will calculate the total loan amount one is eligible for based on this.
For example, if an individual earns a monthly income of Rs.50,000 and spends Rs.20,000 for household expenses, then a lender will calculate eligibility based on the remaining amount of Rs.30,000. It means this particular applicant can afford a housing loan repayment of up to Rs.30,000, and his/her total loan principal amount will be computed on the basis of that.
This is an average estimate, given that an individual does not have any other financial liabilities. Individuals can calculate home loan eligibility by using the following formula:
- Home loan eligibility=monthly savings/equated monthly instalment (EMI) per lakh x 1 lakh.
However, manual calculation often appears cumbersome and may consume time. Additionally, the chances of mistakes are relatively higher. To avoid any such issues, individuals can resort to an online eligibility calculator for a prompt and accurate result.
Alternatively, after knowing the loan amount, one needs to compute the monthly instalments. Prospective borrowers can utilise a home loan EMI calculator for this purpose. This online tool helps to obtain accurate results about monthly instalments payable towards a home loan by entering the loan amount, interest rate and tenor. Additionally, borrowers get to access the loan amortisation schedule with this tool. It provides a detailed break-up of loan repayment and helps them in financial planning.
Selected financial institutions offer a high-quantum home loan at a nominal interest rate against meeting simple eligibility parameters and submitting minimal documents.
Further, most reputed lenders extend pre-approved offers, which streamline the application process. These offers are available on financial products like LAPs, home loans, etc. Interested individuals can check their pre-approved offers by submitting their names and contact numbers.
What are the factors that affect the eligibility for a home loan?
Individuals must consider the following factors that can affect their eligibility before they apply for housing loan in India:
- Type of employment and income
Lenders check an applicant’s financial stability. For instance, a salaried individual working in a well-established corporation will help him fetch a high-value loan amount at a nominal interest rate. At the same time, self-employed applicants with a strong business foundation can also negotiate with a lender for obtaining a favourable loan deal.
Moreover, individuals earning a higher income denote an increased repayment capacity and reduce the chances of default in repayment. This allows them to negotiate for an attractive home loan interest rate.
- Credit score
A credit score depends on a borrower’s repayment history, credit behaviour, etc. This score numerically sums up to represent his/her creditworthiness. Lenders usually approve the home loan to an applicant with a credit score of 750 and above as they are considered reliable debtors.
- Existing financial obligations
A lender deducts an applicant’s existing financial obligation from his/her monthly income to assess the repayment capacity. Individuals with increased financial liabilities can struggle to meet their required repayment criteria against a prefered loan amount, which can result in facing rejection of loan applications.
Therefore, repay any outstanding dues to boost repayment capacity and improve the eligibility for a home loan.
To conclude, it is imperative to calculate home loan eligibility in advance to understand the loan amount one is eligible for. This will aid prospective borrowers to compute their repayment in advance and plan their loan accordingly to avoid facing rejection and have a nice borrowing experience.
