A home loan is a borrowing tool with attractive interest rates used by a majority of Indian home buyers. Apart from low-interest rates, a home loan offers other benefits like tax savings, managing liquidity and opportunity for future savings. And whether you have enough funds or not, understanding the home loan process and its services a must for a smooth sail home buying experience. The first step in this regard is understanding the home loan eligibility. Before considering a home loan, one needs to determine their eligibility which is nothing but your repaying capacity. Understanding your eligibility criteria helps you determine loan affordability and helps you manage your funds assertively.
While home loan prerequisites are often lender dependent, there are some universal determiners for calculating it:
Wondering how much home loan can you avail?
Let’s understand this with an example.
Every bank has its prerequisites for offering home loans. The home loan amount is based on the Fixed obligation to income ratio – FOIR or Loan to value – LTV (whichever is lower is considered to determine the home loan amount). Let us consider the FOIR to be 50% and LTV to be 90%, for a property with an agreement value of ₹ 90,00,000. Considering that you have no other obligations and you have a monthly salary of ₹ 75,000, then the maximum amount you can pay each month is ₹ 75,000*50% = ₹ 37,500. If the tenure for home loan is 30 years, then as per the FOIR, your loan amount = ₹ 37,500*12*30 = ₹ 1,35,00,000. However, LTV is ₹ 90,00,000*90% = ₹ 81,00,000. So, the home loan you can get on ₹ 75,000 salary is ₹ 81,00,000. (depending on your lender’s conditions).
Before availing of housing finance, you must remember that your EMIs must ideally not be above 45-50% of your net take-home salary to avoid any financial stress.
It is also helpful to remember that the larger amount of down payment you make, the lesser is the home loan amount. So, it is best to pay up about 20% of the property value as a down payment. This also enables you to improve your home loan eligibility. In case, the required down payment is a challenge, you can always approach HomeCapital, India’s first Home Down Assistance Program, and get 50% of the down payment amount at zero interest rate.