How Home Loan Eligibility Is Calculated? |AU Small Finance Bank

Buying a home of your own is not just realising a dream but also reaching a state of well-being. Given the size of investment required to buy a home, buying one needs detailed planning. Even when you can take out a home loan, you are required to pay at least 10 to 20% of the property’s market value from your own pocket. When you file a home loan application with the bank of your choice requesting the loan required, the bank will evaluate your income and repayment capacity before approving your application. In other words, the bank will assess your home loan eligibility.

The home loan amount you are eligible for depends on factors like your age, monthly income, etc. Want to learn how banks calculate your home loan amount eligibility? Read on.

How is home loan eligibility calculated? Explain calculation

Below is an example of home loan eligibility calculation:

Say you are earning INR 1,00,000 per month and do not have any underlying financial liability. Then, if you want to take a loan for 20 years at a 8.5% interest rate, your FOIR or Fixed Obligations to Income Ratio will be as follows:

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

EMI per lakh for a loan tenure of 20 years at an 8.5% interest rate will be INR 868.

Home loan eligibility = (50% of 1,00,000 – 0)/(868 x 1,00,000) = INR 57,61,542

So, the maximum amount of loan you will be eligible for will be INR 57,61,542.

You can also enter your details in a home loan eligibility calculator available online to calculate home loan eligibility.

Other factors that affect home loan eligibility

Your home loan eligibility is calculated on the basis of several factors other than your net monthly income and expenditure pattern like:

1.Age

While all the salaried individuals from 21 to 60 are eligible for home loans, most banks and financial institutions consider your age to arrive at the amount of loan you will be eligible for. Generally, younger individuals are eligible for a higher loan amount as they have a longer working life.

2.Employment

The company where you are working and your work experience are also considered while assessing your home loan eligibility. The reputation of your employer and the number of years you have been working shows the banks your stability in the job.

3.Credit score

Your credit history is one of the important factors that determine your home loan eligibility. Even if someone earns a handsome salary, they can have a poor credit score, which can negatively impact their chances of getting a loan.

4.Loan to value

Banks usually keep a buffer while lending to recover the loan amount in case of a default. So, you may be sanctioned a home loan of up to 90 percent on the property even when you are eligible for a greater amount.

How can you increase your home loan amount?

You can increase your home loan eligibility by clubbing incomes of your spouse, parents, siblings or children. Another way to enhance your loan eligibility is increasing your loan tenure, which lowers your EMI amount making you more likely to make timely payments. You can plan ahead and pay your debts sincerely to build a good credit score and enhance your eligibility for the home loan. You can also show your savings and investments to increase your home loan eligibility.

However, availing a higher loan may lead you to pay a higher interest over the loan duration. An exceedingly high loan amount can also result in an added financial burden on you and your family and adversely affect your future loan eligibility. So, you must avail only the home loan amount that is necessary.

Some other factors like your existing debts and the property’s legal and technical approval also impacts your eligibility for home loan. So, now you know how to calculate your home loan eligibility. Choose to apply for a home loan with a trusted bank and enjoy the much-deserved peace of mind along with your beautiful dream home.

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