Simple Steps to Calculate your Home Loan Eligibility

Financing the purchase of a property is a pricey affair, thus necessitating availing of a home loan. This is why the home loan market in India is performing better than other credit types, despite the recent economic turmoil. 

Nonetheless, to keep the lending risk minimum, financial institutions set stringent home loan eligibility criteria that intending borrowers need to comply with. As per a TransUnion CIBIL report, 

  • The home loan inquiry volume witnessed a y-o-y growth of 9.1% in November 2020.
  • However, the loan approval rate stood at only 17.5% of the total inquiries in August 2020. 

Clearly, the lenders approve a home loan application only after assessing an applicant’s eligibility thoroughly. So, if you are planning to apply for this advance, the first step in the process should be to check and calculate the home loan eligibility criteria online.  

Process to calculate home loan eligibility 

Meeting the common home loan eligibility requirements is not enough; individuals also have to fulfil the lender-specific ones to avail of their desired loan amount. To make the process hassle-free, it is recommended to use a home loan eligibility calculator to gauge how much you can borrow beforehand. 

Here are the steps to check the eligibility online – 

Step 1: Visit the official website of your preferred lender and open the home loan eligibility calculator. 

Step 2: Enter your date of birth, city of living, monthly income and finally, fixed monthly obligations. 

Within seconds you will be informed of the maximum loan amount you can avail as per your eligibility. 

The calculator requires the above-mentioned variables to compute the amount you are eligible to borrow since these are directly related to the criteria set by lenders. 

The most common eligibility requirements set by financial institutions include – 

  • Applicants must be residing citizens of India.
  • They should maintain a credit score of 750 and above.
  • Age must range between 23 and 62 years for salaried applicants; 25 and 70 years for self-employed ones.
  • Salaried individuals must have a work experience of at least 3 years; self-employed applicants must have a business vintage of at least 5 years. 

Remember that the home loan eligibility parameters are different for salaried individuals and self-employed ones. Besides meeting these parameters, individuals also need to present a list of documents to testify their eligibility. 

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Home loan documentation 

Following is the checklist of the documents required for home loan. 

  • Identity proof
  • Address proof 
  • Latest salary slips/ Form 16
  • Bank account statements from the last 6 months
  • ITR receipts 
  • Property papers 

While meeting eligibility and completing paperwork is mandatory to avail of a housing loan, understanding the factors that influence home loan eligibility is also crucial. 

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Factors influencing home loan eligibility 

Some of the vital factors mentioned below determine the home loan eligibility. 

  • Credit score 

Typically, lenders ask for a credit score of 750 and above to approve a home loan. Besides credit history, existing debts also come into play in this matter. Individuals with a spotless repayment history and excellent debt management skills can be eligible for the maximum loan amount. 

  • Job stability 

The type of employment also affects the home loan eligibility. For instance, individuals working at a reputed MNC, private or public sector firms for more than 1 year are considered reliable borrowers. 

Similarly, self-employed individuals running a steady business for 5 years or more are more likely to enjoy loan approval of a higher amount from a lending institution. 

  • Monthly income 

The home loan eligibility also greatly relies on the location of your residence, monthly income. For instance, if you live in cities like Mumbai (that have a high cost of living), you should have a monthly income of Rs.25,000 to avail of a sizable loan amount, and so on. 

  • Debt-to-income ratio 
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Existing financial obligations also affect the home loan eligibility. Lenders generally approve a home loan to those with a lower debt-to-income ratio (DIR). Preferably, a DIR between 40% and 50% is deemed ideal for swift approval on a home loan. 

For instance, an individual has a monthly income of Rs.30,000, and a total expenditure is Rs.12,000. In this case, the DIR would be (12,000/30,000) X 100 = 40%.  

  • Property type 

Lenders also consider the type of property and its location before approving a home loan. Usually, a property located in a prime location with all modern facilities can bear higher returns for lenders. Consequently, the amount sanctioned for its purchase can be higher if the borrowers fulfil other requisites.

Eligible candidates also stand to enjoy pre-approved offers extended by leading HFCs across India. These offers are applicable on various other financial products, including a loan against property. You can check your pre-approved offer by providing your name and contact number.

In case you are struggling to meet the home loan eligibility, you can follow some simple tips to improve your chances of getting a sanction letter.

Tips to increase home loan eligibility 

Check out the simple tricks and boost your home loan eligibility significantly. 

  • Try to improve your credit score by paying off the existing debts faster, keeping the credit utilization ratio below 30%, etc. 
  • Apply for a joint home loan with a co-applicant with an impressive credit profile.
  • Mention all sources of income, including rental yields, earnings from fixed deposits and the likes.  

Besides knowing the process to check home loan eligibility, it is also vital to improve the criteria to secure a substantial loan amount with competitive interest rates. 

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