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How To Check Home Loan Eligibility?

mahindra-finance-author

by Mahindra Finance

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February 22, 2024

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7 mins read

calculate home loan eligibility

As a home buyer on the market, you may have many questions! Will I get a home loan quickly enough? Or what are the home loan eligibility criteria? These are very basic questions and you may know the answers to some extent. But as you progress with your home loan application, you will encounter several other important questions that can leave you a little perplexed.

For example, some of you may want to know the home loan eligibility for salaried persons, while others may want to know the same for self-employed persons. You may know the answer to these questions as they can be found easily online. But can you calculate home loan eligibility? Or do you know the factors that influence home loan eligibility? 

If you are wondering how to check home loan eligibility, here we go! Now is the time to go deeper into the subject. Let's find out the technicalities surrounding the home loan eligibility calculations and other related aspects. 

How to calculate home loan eligibility

When it comes to home loans, your lender would calculate home loan eligibility by using financial details provided by you about your income and loans. They would put these financial data into mathematical formulas to calculate a few key ratios.

These calculations assess your financial health and ability to repay the loan responsibly.

Here are a few key ratios that influence your home loan eligibility.

Installment to Income Ratio (IIR): This ratio tells the lender how much of your income can be safely dedicated to your monthly home loan repayments. Imagine it as a pie chart, with IIR being the slice allocated to your home loan payment.

Fixed Obligation to Income Ratio (FOIR): This one goes beyond just the home loan. It factors in the instalments of all your existing loans (like car loans or personal loans) alongside the proposed home loan payment. The lender wants to ensure you have enough room in your budget to manage all your financial commitments.

Loan Cost Ratio (LCR): This ratio compares the loan amount to the total property value. Think of it as a measure of your down payment contribution. A higher LCR (more down payment) indicates a greater equity in the property and makes you a more attractive borrower in the eyes of the lender.

Knowing these ratios and their importance in getting approval for your home loan can help you calculate home loan eligibility on a surer footing. Once you know these ratios and how they impact your home loan eligibility, you can take the time to get them right and enhance your home loan eligibility before you apply.

Factors affecting your home loan eligibility

When you try to calculate home loan eligibility, you realise that your home loan eligibility for salaried persons or self-employed can be improved. How is that possible? Several factors influence your eligibility for a home loan. You can work on them to improve your eligibility score. Here are some of these factors: 

Income and repayment capacity: At the heart of eligibility lies your loan repayment ability. Lenders assess your net monthly income after essential deductions like taxes and existing EMIs. A higher income and manageable debts strengthen your case.

Credit score and history: Your credit score, ideally above 700, acts as a financial report card. A good score reflects responsible credit management and unlocks favourable interest rates, while a lower score might require a higher down payment or impact your eligibility.

Age: Lenders typically prefer borrowers aged between 21 and 65, ensuring the loan tenure aligns with your earning potential. Younger individuals may benefit from longer tenures, while older applicants might have shorter repayment periods.

Employment status and stability: Salaried individuals with stable employment and consistent income generally have a smoother path to eligibility. Self-employed individuals may need to demonstrate income stability through tax returns or financial statements.

Debt-to-Income Ratio (DTI): It compares your monthly debt obligations (EMIs, credit card payments) to your gross monthly income. A lower DTI (ideally below 50%) indicates better affordability and strengthens your eligibility.

Property details: The type, location, and value of the property you seek influence your eligibility and the loan amount offered. Luxury properties or those in prime locations might require higher eligibility benchmarks.

Steps to check your home loan eligibility

You may want to know how to check home loan eligibility step-by-step. This is how you can do it:

Self-assessment: Analyses your income, expenses, credit score, and DTI. This initial evaluation provides a preliminary understanding of your potential eligibility.

Online eligibility calculators: Mahindra Finance offers online calculators that estimate your eligible loan amount based on essential details like income and employment type. You can use it to check your eligibility for a home loan.

Approach lenders: Contact your lender to discuss your specific situation and obtain personalised eligibility assessments. They can provide their eligibility criteria, interest rates, and loan terms.

Tips for Home Loan Eligibility Success

Can you improve your home loan eligibility? The answer is yes, you can, and improved eligibility can also mean quicker approval of your application.

Here are a few expert tips to enhance your home loan eligibility:

Boost your credit score: If your credit score falls short, consider addressing negative factors on your credit report and building a positive credit history through timely payments and responsible credit management.

Compare loan offers: Don't limit yourself to the first offer you receive. Compare interest rates, fees, and terms from different lenders to find the most suitable option that aligns with your financial goals.

Seek professional guidance: If you have complex financial circumstances or require assistance navigating the home loan process, consider consulting a financial advisor or loan specialist. Their expertise can be invaluable in securing the best possible loan terms and ensuring a smooth journey towards your dream home.

Final Thoughts

Buying a house can be a dream come true. However, arranging the necessary finances can be an arduous journey. A home loan promises to take the pain out of this journey. However, you should know how to check home loan eligibility requirements and work to meet them confidently.

Mahindra Finance has been offering housing loans designed for construction, renovations, and home extensions. As the leading housing finance company dedicated to serving emerging India, we provide affordable home loans featuring manageable EMIs, the flexibility to include joint earning members for larger loans, and no penalties for early repayment.

Frequently Asked Questions (FAQs)

Q. What types of houses are financed by home loans?

A. Home loans typically finance independent houses, flats/apartments, both completed and under construction, as long as they have a valid title and necessary approvals from civic authorities.

Q. What is the security required for home loans?

A. The collateral needed for the loan is typically an equitable or registered mortgage on the financed property. The specific type of mortgage will be determined based on the title documents provided by the borrower. Following a preliminary review of the applicant's documents, our legal team will recommend the appropriate mortgage type.

Q. What is the interest rate for home loan for women?

A. For all customers except salaried semi-urban class customers, the rates remain fixed throughout the loan term, established at the prevailing rate on the date of the first disbursement. These rates are subject to review every three years based on prevailing money market conditions.

For salaried semi-urban and urban class customers, the rates are variable and will adjust according to fluctuations in the money market. Changes to these rates will be communicated periodically.

Q. Can I prepay the home loan?

A. The loan can be paid and MRHFL will not levy early redemption charges.

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