When looking to buy a home, it is essential that you first figure out your home loan affordability or eligibility. This is so that you have clarity on your home-buying budget. Your home loan eligibility depends on several factors. These factors help the bank determine what amount of home loan you will be able to pay back without facing problems over the loan tenure. It also helps you figure out how the home loan fits into your financial plan. You can use a home loan affordability calculator on the official website of the lenders that you have narrowed down. A home loan calculator will quickly give you an idea of your home loan eligibility. However, before you use the calculator, it is essential that you know which factors affect your home loan affordability. Let us look at them.
The younger the age, the higher the home loan eligibility. This is because home loan tenures are typically long, and those who have several income-earning years ahead of them are suitable candidates compared to someone closer to retirement.
Your annual income is one of the most significant determinants of your home loan eligibility because your home loan amount is primarily based on your income and the value of the home. The higher your income, the higher the home loan amount you are eligible for when you apply for a home loan; in addition to your income, how stable your income is.
Your current debt obligations also impact your home loan eligibility. Suppose your income is already burdened with too many Equated Monthly Installments (EMIs), negatively impacting your home loan eligibility. Conversely, if you have no debt obligations currently, your eligibility increases.
Credit rating agencies such as CIBIL assign credit scores to individuals based on their credit history, which banks use to assess if the borrower is high-risk or not. The higher your credit score, the better your home loan eligibility is because the bank won’t view you as a high-risk borrower with a high probability of default.
Other facts that impact your home loan eligibility include the availability of collateral or security, previously rejected loan applications, etc. For instance, if you had applied for a loan in the past and the application was rejected, this may negatively impact your eligibility. The lender is trying to assess how seamlessly they will get their money back, and hence these factors are essential.
Figuring out your home loan eligibility using a home loan affordability calculator also helps you because you do not want to take on a bigger loan so that you can comfortably manage to pay as you meet other expenses and go through life.