Every lender has strict eligibility requirements. These eligibility requirements vary around factors, such as age, income, debt-to-income ratio, repayment history of the borrower, their credit score, etc. Lenders look at these eligibility parameters primarily to understand whether a borrower can be trusted with timely repayment of loan money and gauge the risk involved for them in doing business with the borrower. Applicants who pass a lender’s home loan eligibility criteria get approved for a loan easily and are also able to negotiate for favourable loan terms and conditions. On the other hand, borrowers who do not pass a lender’s eligibility requirements very often find their loan application getting rejected. All home loan applicants are thus advised to check their home loan eligibility and move ahead with the loan application process only if they meet their lender’s eligibility requirements. Before we look into how a home loan eligibility calculator can help a borrower assess their eligibility, let us look at the factors that affect an applicant’s home loan eligibility.
Factors that Affect Home Loan Eligibility
Home loan eligibility criteria may vary slightly from lender to lender. However, home loan eligibility always depends on the following factors:
- Age: Age is one of the key factors that determines a person’s home loan eligibility. Borrowers in their late 20s and early 30s have many working years ahead of them. They are more likely to receive more promotions and pay hikes than someone in their late 50s. Thus, lenders assume that the repayment capacity of younger applicants is higher than the repayment capacity of an applicant who is in late 40s or early 50s and are not wrong to assume so. Thus, younger loan applicants have higher home loan eligibility than borrowers in their late 40s and 50s.
- Credit Score: An applicant’s home loan eligibility is also greatly determined by their credit score. The credit score is a three-digit number that credit information agencies assign borrowers based on factors, such as the applicant’s repayment history, their credit utilization ratio, dependency on credit, etc. Borrowers who have a credit score of 750 or above have high home loan eligibility. On the other hand, borrowers with their credit score below 750 find it difficult to get approved for a loan on beneficial loan terms and conditions.
- Debt-to-Income Ratio: The debt-to-income ratio tells lenders what percentage of a person’s income is going towards covering debt. If a considerable portion of your income is already going towards covering debt, it is unlikely that you will get approved for a loan. Lenders want to lend money only to those borrowers whose debt-to-income ratio, after opting for housing finance, is below 40%.
- Income: Lastly, an applicant’s income also greatly determines their home loan eligibility. Borrowers with a stable income are more likely to get approved for a loan then someone who has an instable income. Borrowers in stable jobs therefore get easily approved for a loan. On the other hand, borrowers running their own business and having no stability find it difficult to get approved for a loan on good loan terms and conditions.
The lender you apply to will determine your home loan eligibility based on these factors. If you have low home loan eligibility, you need not worry. It is possible to enhance one’s eligibility for a loan. Improving one’s credit score, reducing one’s debt, adding a co-borrower, etc. are some simple things that borrowers can do to enhance their eligibility for a home loan.
Let us now look at what a home loan eligibility calculator is and how it can help borrowers determine their borrowing potential.
What is a Home Loan Eligibility Calculator?
The home loan eligibility calculator is an online tool that home loan borrowers can use to figure out the home loan amount they can apply for and are eligible to borrow. The home loan eligibility calculator generally asks borrowers to enter the following information:
– Net Monthly Salary that the applicant is drawing
– Additional sources of income, if any
– The repayment tenor over which they wish/plan to repay their loan
– Current EMI obligations
Once a user enters these values, the home loan eligibility calculator shows them the home loan amount they are eligible to borrow. Applying for a loan amount that one is eligible to borrow leads to quick home loan approval. Plus, it also gives borrowers high negotiating power. On the other hand, applying for a loan amount higher than one is eligible may lead to home loan application rejection. Let us now walk our readers through the steps to be followed while using a home loan eligibility calculator.
How to Use the Home Loan Eligibility Calculator: A Step-by-Step Guide
– Go to your lender’s website and search for the housing loan eligibility calculator. You can easily find one on the internet, too. However, it’s best to use the one available on your lender’s website since home loan eligibility calculators may vary slightly from lender to lender.
– Once you have opened the calculator, you will be asked to enter details, such as your name, address, city of residence, etc.
– Next, you will be required to input your net monthly income; the loan repayment tenor that would work best for you; additional sources of income, if any; and other current EMI obligations.
– Once you have entered these values, your home loan eligibility calculator will give you the loan amount that you are eligible for. Apply for this amount or something lower to enhance your chances of loan approval.
Final Words
A home loan eligibility calculator is a handy tool that all home loan applicants must use before beginning the home loan application process. Applying for this loan amount will not only enhance your chances of loan approval but will also make it easier for you to repay your loan and steer clear of late fees and penalties.
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