Home Loan Eligibility Calculator

Owning a home is ideally the first asset that an individual should add to their name, as it acts as a safety net in case of distress, financially or otherwise. However, proceeding with this asset is a massive step that requires careful planning, one of which may compel you to secure a home loan. Planning out the next set of mortgage paying years can strain the pocket, the first step of which begins with assessing the affordability of the same. Use the cleartax home loan eligibility calculator to take the first of many steps in this financial journey.  

What Is Home Loan Eligibility? 

Home loan eligibility is the term lenders use to determine your capacity to get and repay a loan. To get a home loan, you must satisfy certain eligibility conditions such as your age, financial position, credit history, credit rating, and other current financial obligations, which guarantee lenders that you will be able to repay the loan with ease. 

If you fail to meet these requirements, your application can be declined, impacting your credit record. To make the process quicker and more convenient, you must try to meet all the required criteria before applying.

How To Use Home Loan Eligibility Calculator?

To use the home loan eligibility calculator, follow these simple steps:

• Enter your monthly income along with any current monthly obligations, such as EMIs for other loans.
• Enter the desired tenure for your home loan.
• Enter the interest rate that corresponds to the bank from which you wish to avail the home loan.  
• The calculator will automatically display the total loan amount you are eligible for, along with the monthly EMI payable for the same. 

How Is Home Loan Eligibility Calculated?

Home loan eligibility is calculated by considering various factors such as your monthly income, current age, credit score, any existing loan obligations, and the years remaining until your retirement. 

Let's assume that Mr Sharma aims to purchase a home loan, with the following parameters in place: 

• Monthly Salary: Rs 50,000
• Tenure: 20 years (240 months)
• Interest Rate: 8%

Step 1: Calculate the maximum EMI you can afford

Since banks allow you to use 50% of gross monthly income for loan EMI:

EMI=50000×(50/100)=25000

So, you can afford to pay ₹25,000 per month as EMI.

Step 2: Input values in the formula

The loan eligibility formula is:

P = EMI x [(1+r)(^n) - 1]
             r x (1+r)^n

Where:

• P = Loan amount (we want to find this)
• EMI = ₹25,000 (from Step 1)
• r = Monthly interest rate = 8% per year → (8/12) x (10100) = 0.00667
• n = Loan tenure in months = 20 years → 20 x 12 = 240 months

Adding these values to the formula, 

P = 25000 x [(1+0.00667)(^240) - 1]
         0.00667 x (1+0.00667)^240

P= ₹29,88,857.29

Therefore, the final loan amount Mr Sharma is eligible for is Rs 29,88,857.29.

Home Loan Eligibility Criteria

The following mentions the eligibility criteria for availing of a home loan:

Documents Required For Home Loan Eligibility

The following are the documents you are required to submit for home loan eligibility calculator:

• Completed Application: A fully filled-out home loan application form.
• Recent Photographs: A set of recent passport-sized photos.
• ID Proof: Any of the following identification documents - Aadhaar Card, PAN Card, Voter ID Card, Driving Licence, Passport
• Address Proof: Any of the following documents as proof of residence:
• Age Proof: One of the following documents as proof of age - PAN Card, Passport, Driving Licence, Birth certificate, Aadhaar Card with date of birth, Bank passbook, Class 10 (SSC) mark sheet
• Property Documents: Any of the following - Sale deed, Stamped agreement of sale, Allotment letter, occupancy certificate for ready-to-move-in homes
• Income Proof: Depending on your employment type, you have you have to provide the following documents:
  • For Salaried Individuals: Form 16, Official letter from employer, Last 6 months' bank statements, salary slips for the last 3 months, income tax returns for the past 3 years
  • For Self-employed Individuals: Income tax returns from the last 3 years, bank statements from the previous 6 months, CA-certified Balance Sheet and Profit & Loss Account, proof of educational qualifications

Factors Affecting Home Loan Eligibility

When planning a home loan in India, knowing the factors determining your home loan eligibility is essential. The following are crucial factors determining home loan eligibility:

Age: 

• Lenders consider the applicant's age important. 
• Younger applicants typically benefit from a longer loan term, but those near retirement may be offered a shorter repayment period.

Income: 

• Your income plays a significant role in determining your ability to repay the loan. 
• Lenders assess your income stability to ensure you can handle regular EMIs. 
• A stable income helps avoid payment defaults, so they review your financial status thoroughly from the start.

Credit Score: 

• A good credit score indicates your record of fulfilling financial obligations. 
• It informs us about whether you are credit-worthy and whether you will pay on time. 
• A CIBIL score above 750 is typically desired, as it represents high creditworthiness.

Employment Status: 

• The lenders prefer salaried candidates with a steady job and 2 to 3 years of experience with the current organisation. 
• This provides lenders with a guarantee of regular payments. 
• For self-employed, the eligibility for a loan is based on the business's financial performance.

Loan Amount: 

• Choosing the right loan amount based on eligibility helps with smoother EMIs and faster approval. 
• A larger loan can lead to burdensome EMI payments, and missed or delayed payments can impact your credit score and future loan eligibility.

Loan Tenure: 

• Home loans generally offer flexible tenures, sometimes up to years. 
• You can only benefit from longer tenures if your age fits within the maximum limit at loan maturity.

Current Financial Commitments: 

• Lenders consider your current financial commitments, such as recurring loans and credit card payments, to determine if you have sufficient remaining for further credit. 
• If fees are already high every month, lenders might be hesitant to grant your loan. 
• Paying off dues or introducing additional income (such as bonuses, rent, or a co-borrower) can enhance your eligibility.

How To Improve Your Home Loan Eligibility?

The following are the different ways you can improve your home loan eligibility:

Keep a Healthy Credit Score: 

• Your credit score plays a vital role in deciding your eligibility for a home loan. 
• A good score indicates financial stability, allowing lenders to gauge your repayment capacity. 
• To ensure your credit score remains healthy, pay bills on time, don't default on loans, and maintain a low credit utilisation ratio.

Pay Off Current Debt: 

• Lenders scrutinise your debt-to-income (DTI) ratio closely to gauge financial stability. 
• A high DTI ratio could imply repayment difficulties. 
• To enhance loan eligibility, pay off your debt obligations by paying off credit card balances, personal loans, and other debts.

Save for a Substantial Down Payment: 

• A down payment is the amount you pay upfront when buying a home. 
• Lenders favour borrowers who can contribute a significant down payment, as it lowers the loan amount needed and reduces default risk. 
• Saving up for a larger down payment can strengthen your eligibility.

Go for a Longer Tenure: 

• Your loan tenure, or repayment period, is critical in your home loan terms. 
• While alonger tenure will reduce your EMIs and thus increasing your eligibility, it also tends to be more expensive in terms of interest paid over the years. 

Decrease Your Loan-to-Value Ratio: 

• The loan-to-value (LTV) ratio is the percentage of the home's worth you want to borrow as a loan. 
• Using a lower LTV ratio decreases the amount of the loan and your likelihood of rejection.

Have a Stable Employment History: 

• Lenders seek a stable employment history to indicate income stability, which is necessary for loan repayment. 
• A stable job or business history can benefit your eligibility, assuring lenders of your intention to repay.

Avoid Delayed Payments: 

• Delayed payments on credit cards or loans may damage your credit score and impact your loan eligibility. 
• Making timely payments every time demonstrates fiscal discipline, which lenders consider a positive factor when reviewing your loan application.

Knowing the different factors determining your loan eligibility is essential for a hassle-free home-buying experience. Using a home loan eligibility calculator, you can calculate your financial position and make informed choices before applying. This makes it easy to follow the required criteria and gives you a better chance of getting your loan approved. By adhering to the advice in this guide, you can enhance your eligibility, setting the stage for a successful home purchase.