Purchasing a residential property always involves the use of credit. One of the first questions that come to mind at such times is, how much loan would I be eligible for? After all, just because a person earns ₹1 lakh per month doesn’t mean that they automatically qualify for a ₹50 lakhs loan.
Home loan Eligibility Calculator
Loan eligibility is calculated using a formula that is based on the lender’s logic. Let’s take the example of Akash, a software engineer, to understand the home loan eligibility calculator. Let’s assume he earns ₹80,000 per month; now, earnings do not equate to savings. Indian Banks believe that individuals will save 40-50% of their in-hand income after deducting expenses.
If we take the savings like 50% in this case, then ₹40,000 is available for the re-payment of the housing loan EMI. By doing a reverse calculation, the bank figures out the EMI amount needed to pay off a ₹1 lakh loan based on the standard rate of interest and loan tenure. Assuming the interest rate as 10.5% and the tenure as 20 years, the required EMI will be ₹998 to pay off a ₹1 lakh loan.
Considering this and Akash’s ability to pay an EMI of ₹40,000, his home loan eligibility would be calculated as:
₹1,00,000 x 40,000/998 = ₹40 lakhs
If Akash had an existing EMI of ₹10,000, then his monthly savings would be considered as ₹30,000 and not ₹40,000. Consequently, the above home loan calculator formula would reduce his eligibility for a housing loan to 30 lakhs.
Several factors affect your housing loan eligibility, such as,
- Credit history
- Past relationship with the bank
- Employer’s category
Tips to increase your loan eligibility
Increase the Loan tenure
Let’s assume that your loan eligibility is ₹20 lakhs if you plan to take a 10-year loan tenure. By changing the loan tenure to 20-years, you could become eligible for ₹30 lakhs by paying the same EMI.
Prepay existing loans
Completely paying off existing loans will increase your monthly savings. This increases your ability to repay higher EMIs and will push up your housing loan eligibility amount.
Decrease EMI of other loans
You can also increase your monthly savings by decreasing the amount paid as EMI on other loans. You can reduce the EMIs of other loans taken by increasing their loan tenures.
Include spouse/parents in the loan application
Including spouse/parents as additional applicants improve your loan eligibility as it shows more income to support the loan. They must be able to produce all the documents and ITR as income proof.
Add bonuses too
It would help to let the bank know about any additional bonus that you receive from your employer. It would be a good idea to tell them about any other sources of income that you may have, like rental income, business income, or interest earned on deposits.
Banks are mainly concerned with your ability to repay the housing loan that you have applied for. Showcasing your strong points in this area will boost your chances of securing a housing loan and increase your loan eligibility amount too.