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HomeFinance5 Easy Ways To Calculate Eligibility For a Home Loan

5 Easy Ways To Calculate Eligibility For a Home Loan

If you want to apply for a loan to purchase your dream house, you must meet certain eligibility requirements set by your lender, based on which your creditworthiness is determined. Meeting those eligibility criteria allows you to access funds to buy a home without much hassle. But, failing to meet those requirements will lead to your loan rejection. 

Therefore, you must check your eligibility using home loan eligibility criteria before applying for one because multiple rejections could hurt your credit score and leave a negative mark on your credit report. The upside of meeting your home loan requirements is that you can
get a home loan in a quick and hassle-free manner.

How Lenders Calculate Your Home Loan Eligibility? 

After applying for a home loan, your lender assesses your application and runs a verification check to decide on your application. So, you must meet the eligibility criteria set by the lender to make a successful home loan application. 

Several factors go into determining a borrower’s eligibility for a housing loan. However, it is worth noting that the weight assigned to these factors varies across lenders. Factors affecting your home loan eligibility are: 

  • Age

You must be at least 18 years old at the time of the home loan application and not more than 65 years at the end of the loan tenure. A home loan tenure can go up to 20-30 years, due to which lenders cap the retirement age as the maximum limit to get a loan. If you are a young borrower, you are eligible to avail of the longer loan tenure. The reason is that you have more working years than a person who is in his fifties. On the other hand, a 50 year applicant may be eligible for a home loan, but the tenure cannot exceed 15 years.

  • Credit score

Your credit score or CIBIL score indicates your creditworthiness. It ranges between 300 and 900. The closer you are to the 900 range, the greater are your chances of securing a home loan. Most lenders require a minimum CIBIL score of 700, and anything below this range will lead to  higher interest rates or in some cases, even rejection of your home loan application. 

  • Employment

As a salaried borrower, you must show at least two years of total working experience to be eligible for a home loan. As a self-employed individual, your business should be active for at least three years. 

  • Debt-to-income ratio

The debt-to-income ratio refers to the percentage of your current financial liability with respect to your monthly income. As a rule of thumb, your debt-to-income ratio should not cross 50%. A higher debt-to-income ratio implies that a major portion of your income goes into paying off existing debts, thus increasing the risk of defaulting in the future. 

  • Property details

Lenders also consider the age and location of your property before approving your home loan application. Your loan will get rejected if the location of the property is not within the geographical limits defined by your lender or if the property is too old. 

  • Value of the property

As per the instructions of the Reserve Bank of India, the Loan-to-Value ratio can not exceed 90% of the property’s insured declared value. It means that you will have to pay the remaining amount as a down payment. Paying a higher down payment will reduce the loan amount, thus increasing your chances of securing a home loan. 

How to calculate your home loan eligibility?

If you meet the above-said requirements, you can use an online home loan eligibility calculator to determine home loan eligibility. The crucial components of a home loan eligibility calculator are - monthly income, the estimated loan amount, the loan tenure, total monthly EMIs, and the rate of interest. 

There are five simple steps you can follow to calculate your eligibility for a home loan. It gives you an idea of how your lender will approve or disapprove your loan application. Follow the underlying steps to calculate your home loan eligibility.

  • Use an online home loan calculator that is available for free on most reputed lenders’ websites.

  • Enter your gross monthly income. If you are an NRI, you will need to mention your net monthly income. 

  • Enter the loan tenure within which you wish to pay the loan amount with interest. A longer loan tenure helps in enhancing eligibility. 

  • Input your lender’s home loan interest rate. Make sure that the interest rate is calculated on a per annum basis. 

  • The calculator will process these details and instantly display a suitable loan amount that you are eligible to apply for.

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