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. But have you assessed your home loan eligibility? After all, not everyone who applies for a housing loan gets the go-ahead. Read on to know what determines home loan eligibility and how you check your eligibility in a jiffy before applying for a loan. 

What is Home Loan Eligibility

Home loan eligibility refers to a set of criteria based on which any financial institution – banks or NBFCs – evaluates the customer’s creditworthiness to avail of 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, financial obligations etc. 

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 the EMI burden and offers an affordable home loan interest rate.
2. Income
   Lenders usually have a specific income range in mind based on the city you reside in to assess your eligibility for a housing loan. For instance, the income criterion for a loan amount of up to INR 5 Crores for a period of 30 years from cities, like Kolkata, Hyderabad, and Gurugram is INR 25,000 per month.  
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 5 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 yet overlooked factors affecting your home loan eligibility as lenders are deeply concerned with unpaid dues. Skipping loan EMIs or paying them late regularly leads the lender to think of you as someone who is likely to default on repayments. 

Home Loan Eligibility Based on the Value of Property 

When applying for a loan, you must know that the lender would never provide you with a home loan amount equivalent to the entire worth of the property.  It will only lend an 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. The higher the LTV Ratio, the more eligible you will be for availing a housing loan. It depends on the location, age and evaluation of the property, commercial or residential.  

Based on market research, the table below displays the LTV Ratio one is eligible for as per the property value – 

Value of the Property	LTV Ratio
Below INR 30 Lakh	90%
INR 30-75 Lakh	80%
Over INR 75 Lakh	70%

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, like investment returns, dividends and rentals etc.
• Add your spouse/parents as a 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 customized online tool used to calculate an individual’s eligibility for a home loan by taking various factors into account. It helps you determine how much loan amount you are eligible for and the amount of EMI you will be paying for it every month.  

Steps to Use a Home Loan Eligibility Calculator

You can check your eligibility in a jiffy with the help of a home loan calculator. All you have to do is follow the steps mentioned below – 

• Access the online calculator on the portal
• Select the city you reside in
• Enter your Date of birth
• Provide details about your monthly income and other obligations

• The home loan calculator will automatically display the amount best suited for you 

How to Calculate the EMI for Your Home Loan

Talking about affordable EMIs, you can find a suitable amount to pay off your monthly installments 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 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 – 

• Access the online calculator on the portal
• 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 calculator is that you can keep changing the sliders till you get the desired quote since there are no end-usage restrictions. 

Conclusion

While a housing loan certainly makes for an easier, more convenient financial solution to big-budget purchase problems, not everyone is entitled to enjoy the 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 that is by using an online home loan calculator. Nevertheless, you can always discuss your home loan eligibility and monthly EMIs with your lender before signing on the dotted line.