While applying for a Home Loan, the first thing that borrowers face is their eligibility for the Home Loan. Banks and other Home Loan Providers factor in a lot of variables to determine the eligibility of a borrower. Here are 3 easy steps that are taken to calculate Home Loan Eligibility:
- Step 1 – Savings: Banks check your Salary and Banks Statements to calculate the income level as well your Savings. They usually assume 30% of the income as the savings.
- Step 2 – Existing EMIs: Banks check if there are any other existing EMIs. They are subtracted from the gross income to arrive at the Net Income.
- Step 3 – Backward Calculations: Backward Calculations: Home Loan Providers perform a backward calculation and arrive at a Home Loan amount for which the borrower is eligible and can comfortably pay off.
This is a broad outline of how the Home Loan eligibility is determined. The subject is a little more nuanced and warrants an in-depth look from the Home Loan applicants. Let's understand this with more context, depth, and examples.
Home Loans can provide an easy method to owning your own Home. Buying a house with the help of loan also comes with many tax benefits. But, it is also imperative to understand all the criteria that Banks employ before going for the home loan.
The borrowed capital under the Home Loan can be used for many purposes such as purchasing, construction, and even renovation. It doesn't matter if the applicant is a business owner or a salaried employee, each individual needs to check for the Home Loan eligibility before approaching the Home Loan Providers. Today, this can be done online with just a few clicks using financial portals such as Chqbook.
There are many factors that help the banks in determining an applicant’s eligibility for the Home Loan. Among many such variables following are some of the most important one that banks utilize before sanctioning your loan:
- Credit Score: One of the most important factors that Banks look into before the Home loan is sanctioned is the individual credit score. A good credit score will not only improve the odds of getting the loan with better flexibility on the loan amount but also on Tenure, EMIs, tenure and Interest Rates. If your track record shows default payments, any fraudulent transactions, and outstanding loan, it will automatically reflect negatively on the credit score of the applicant. This might lead to cancellation of the loan request or might result in Banks charging you a higher Interest Rate.
- Employment History: It is one of the most important aspects considered for determining the Home Loan eligibility. The applicant should either be a salaried employee for at least 2 years or if the applicant is self-employed as a business owner the minimum period of total earnings should at least be of five years.
- Employer Reputation: The reputation of the applicant's employer is also an important factor. A corporation that has an impressive turnover and market credibility commands a higher flexibility in terms of Home Loans for its employee. Therefore belonging to a reputed and high turnover company can be an advantage when applying for a home loan.
- Financial Stability: Past track records are exhaustively evaluated to determine the financial stability of the applicant. It is an essential tool in evaluating the eligibility for the home loan. A good financial record can influence all the aspects of the Home Loan such as Interest Rates, Loan Amount, and Tenure.
- Age: Generally speaking, younger applicants enjoy better access to much more profitable loans. Most of the Home Loan providers such as banks offer loan options to the salaried the individuals between the age group of 20 to 60 years. For self-employed this age group is ideally 24 to 65 years.
Most banks, in the beginning, say that they offer Home Loan up to 30 times of the net income. This makes the applicants much excited about the process. But if truth be told, there are many factors that influence the Home Loan amount that one is eligible for. When the Home Loan is being processed, many things change. It is thus, highly advisable to be aware of how banks and other Home Loan providers calculate the Home Loan eligibility.
There is no rocket science behind all this! Just simple mathematical calculations. What is the Net Income? It is generally the Total Basic Salary along with House Rent Allowance (HRA), LTA, Medical Allowance, Performace Bonus, EPF, and even Food Coupons and other allowances. While the Home Loan is processed, not everything is considered as the part of the Net income, this is one of the prime reason the Home Loan amount for which one is eligible changes.
Banks and other Home Loan providers exclude Medical Allowances and LTA while factoring in the Net Income for their Home Loan eligibility calculations. Therefore,
Net Income = Total Income – (Medical Allowance + LTA)
There are many other expenses that should be considered while making the final purchase for the house with the help of a Home Loan, such as 'Sources of Capital' for Stamp Duty and 'Registration Charge'. Make sure to remember that these special charges are calculated on the Super Built-Up area and not just the Built Up area.
If you are finding these calculations and method tedious, you should not be disheartened. It is a complex process and getting lost is understandable. Financial service providers such as Chqbook are there to help and guide you in any way possible. You can check the eligibility for your Home Loan amount in a matter of minutes using, the Chqbook eligibility calculator.
Such calculators help the individual in figuring out how much loan amount can one afford according to his or her monthly income. Using these calculators is easy. Here are three simple steps to calculate your Home Loan eligibility using the online calculator:
- Enter your personal details such as Age, and Monthly Income.
- The Calculator will provide an EMI amount figure that fits your budget.
- Enter the number of years as our Home Loan Tenure and the Interest Rate of the loan. The eligibility calculator will show your Home Loan Eligibility amount.
Chqbook believes in encouraging every home buyer to become more informed about the Home Loan process. And is committed to helping people make a wise and safe financial decision.