What is Home Loan Eligibility and How is it Calculated?

Once you have found your dream home, having some financial backup certainly makes things easier. A Home Loan is just the perfect solution in case you do not have sufficient funds or are reluctant to splurge all your savings. Before applying for a housing loan, it is advisable to check your eligibility. Read on to learn what determines Home Loan eligibility and how you check your eligibility instantly before applying for a loan.   

What are Home Loan Eligibility Criteria?

Home Loan eligibility criteria refer to a set of parameters based on which any financial institution – banks or NBFCs – evaluates the borrower’s creditworthiness to avail of a Home Loan and repay a certain loan amount. An individual’s eligibility for a housing loan depends on parameters, such as credit history and CIBIL score, age, employment status, and financial obligations.

Factors Affecting Home Loan Eligibility

An individual’s eligibility for a Home Loan is primarily determined based on the following factors:  

1. Applicant’s Age
   This basically concerns how many years of employment you have left to be able to repay the loan amount comfortably. The younger the age, the better the chances. This is because taking a Home Loan at a young age, years before your retirement allows you faster approval and sanction on the desired amount. It further helps lower your EMIs and offers a competitive Home Loan interest rate. 
2. Income
   Lenders usually determine a specific income range based on the city you reside in to assess your eligibility for a housing loan. A stable income enhances your chances of getting approved for a Home Loan. 
3. Employment Status
   The next big factor determining Home Loan eligibility is your employment status. Working in a public or private sector company or an MNC for 3 years and over projects you as a reliable borrower. If you are self-employed and run a business with over 3 years of demonstrated income, lenders are more inclined towards sanctioning the loan on flexible terms.
4. Credit Score
   Your credit score or CIBIL score reflects your creditworthiness based on your repayment history – the number of existing loans or credit card dues you have, the kind of debt you previously borrowed, etc. The lender can simply assess your financial credibility and repayment capability on the basis of the CIBIL score before sanctioning the loan. On a scale of 300 to 900, a score of 750+ is typically desirable. The higher the score, the more promising are your chances.
5. Existing Financial Obligations
   This is one of the most important factors affecting your Home Loan eligibility as lenders are deeply concerned with unpaid dues. If you frequently miss or delay loan EMIs, the lender may perceive you as someone prone to defaulting on repayments. 

Home Loan Eligibility Based on the Value of Property 

When applying for a loan, you should know that the lender sanctions the loan amount basis the loan-to-value ratio or LTV. Simply put, LTV refers to the percentage of the property value financial institutions agree to lend you. The remaining cost is to be borne by you. Increasing the LTV raises the perceived risk of the borrower, whereas a reduced LTV ratio can result in more favourable terms, such as lower interest rates on your Home Loan. It depends on the location, age, and evaluation of the property, commercial or residential.   

The table below displays the LTV ratio one is eligible for as per the property value: 

How Home Loan Eligibility is Calculated?

The following is an example of how Home Loan eligibility is calculated. 

Let's say you are earning Rs.1,50,000 per month and have no financial obligations. If you are planning to avail of a Home Loan for 20 years at an interest rate of 8.50%* p.a. then your FOIR or Fixed Obligation to Income Ratio will be: 

FOIR = Home loan eligibility = Your monthly savings / (EMI per lakh x 1 lakh) 

EMI per Lakh for a loan tenor of 20 years at an interest rate of 8.50%* p.a. is Rs.868. 

Therefore, Home Loan eligibility = (50% of 1,50,000 – 0) / (868 x 1,00,000) = Rs.86,42,313 

So, with a monthly income of Rs.1,50,000, you would be eligible for a maximum loan amount of Rs.86,42,313 at an interest rate of 8.50%* p.a. for a tenor of 20 years.  

Calculating Home Loan eligibility manually may cause errors. Instead, to get error-free results instantly, you can use a Home Loan Eligibility Calculator and determine the loan amount you would be eligible for.  

How to Increase Your Home Loan Eligibility? 

Once you know about the factors affecting your Home Loan eligibility, you can work towards improving it by adopting a few measures before approaching the lender. Here are a few tips to increase your Home Loan eligibility:  

• Clear your debts, existing loans, and credit card bills on time to avoid any defaults.
• Keep your debt-to-income ratio low, preferably below 30%.
• Aim for a higher CIBIL score, preferably over 750. 
• Review your credit report regularly to look for any errors and fix them at the earliest.
• Declare other income sources, such as investment returns, dividends, and rentals. 
• Add your spouse/parents as a financial co-applicant to demonstrate solid financial backup.
• Opt for a longer repayment tenor.

Be sure to use a Home Loan Eligibility Calculator to assess your eligibility before applying for a loan for your dream house. 

What is a Home Loan Eligibility Calculator? 

A Home Loan eligibility calculator, as the name suggests, is a customised online tool used to calculate an individual’s eligibility for a Home Loan by taking various factors into account, such as your city of residence, date of birth, monthly income, and monthly obligation. It helps you determine how much loan amount you are eligible for. 

Steps to Use a Home Loan Eligibility Calculator

You can check your eligibility in a jiffy with the help of a Home Loan Eligibility Calculator. All you have to do is follow the steps mentioned below – 

1. Access the online calculator on our website.
2. Select the city you reside in.
3. Enter your date of birth.

4. Provide details about your monthly income and other obligations.

The Home Loan Eligibility Calculator will automatically display the amount best suited for you. 

How to Calculate the EMI for Your Home Loan

Talking about manageable EMIs, you can estimate your monthly instalments with the help of a Home Loan EMI Calculator. The online tool is designed to provide you with an estimate on the basis of information, such as principal amount, repayment tenor, and Home Loan interest rate.  

The Home Loan EMI Calculator works by the following mathematical formula: 

EMI = P x R x (1+R)^N / [(1+R)^N-1],  

where P = Principal; R = Rate of interest; N = loan tenor 

How to Use an Online Calculator for Home Loan EMI

The steps to use an online calculator for housing loan EMI are simple. All you have to do is: 

1. Access the online calculator on our website. 
2. Enter the principal amount followed by the rate of interest and tenor (in years)

The calculator will provide an estimate of the Home Loan EMI in seconds. You can also view the total EMI and total payable amount displayed on the screen. The best part about using a Home Loan EMI Calculator is that you can experiment with various factors to arrive at a suitable EMI value at no cost.  

Conclusion

While a housing loan can make for an easier, more convenient financial solution to property purchase, one has to be eligible to enjoy these benefits. Therefore, it is important to know what makes you eligible for the loan and how you can increase your chances of getting it sanctioned without hassles. One of the best ways to determine this is by using an online Home Loan Eligibility Calculator. Nevertheless, you can always discuss your Home Loan eligibility and monthly EMIs with your lender.