Home Loan Eligibility simply means how much loan amount you can get for buying a home. Just because you are earning Rs 1 lac a month, does not mean that you can take a Rs 50 lacs loan. Its always based on a formula and is calculated based on some formula and logic, which we are going to see today.
There are several other kind of loans like Personal loans, Car Loan, Education loans – but out of all the loans, home loan is the biggest ticket size loan and takes longer to pay off. While this article is true for all kinds of loans, still we will focus on home loan eligibility in this article.
Think from the Lender’s point of view
Before we go deeper into this article, I want you to think like a lender for some time. Think as if you are a lender and you are giving loan to someone. How will you think, how will your thought process be ? Think for a minute and trust me, you will yourself realise that calculating someone’s loan eligibility can be very easy. There are various factors one has to look at before giving a loan to someone. Just because someone is earning a lot of money , does not mean that he/she is eligible to get loan of any amount. There are various other factors which will come into picture.
Example of Calculating Home Loan Eligibility
Lets say Ajay earns Rs 80,000 per month as a Software Engineer. Now its very obvious that he is not left with all Rs 80,000 per month as his savings. After deducting his expenses and commitments, he must be left with some amount. As a thumb rule, banks in India assume that you are able to save anywhere from 40%-50% of your in hand income. For this example, lets say that the ratio is 50%.
So the bank will assume that the savings per month is 50% of Rs 80,000 , which is Rs 40,000. This Rs 40,000 is available for repayment of any kind of EMI’s .
Now bank will do the reverse calculation and find out how much EMI is required to pay off Rs 1 lac loan using the standard interest rate and tenure. Assuming that the bank takes 20 yrs tenure and interest rate of 10.5% , the EMI required to pay Rs 1 lac loan per month comes to Rs 998.