How home loan eligibility is calculated in INDIA? What is the eligibility for home loan in India? Am I eligible for home loan? How to calculate your home loan eligibility?
While buying a new house it is important to know the eligibility to get a home loan. Home loan eligibility is calculated after considering various factors as below:
- Borrowers CIBIL Score
- Monthly income
- Fixed monthly obligation
- Qualification of borrower
- Number of dependents
- Co-applicant’s income
- Assets & Liabilities
- Stability of income
- Continuity of occupation
- Savings history
- Current age
- Retirement age
- Value of the property etc.
A Borrower’s home loan eligibility gives him a good idea about which home he can afford.to buy. So in a way it is an affordability indicator. You are eligible for a loan if you are a salaried, self-employed professional or a businessman.
FOIR (Fixed Obligations to income ratio)
Financial institutions lay down certain parameters that help them assess the credit worthiness of applicants. FOIR or fixed obligations to income ratio is the computation of fixed monthly outgo of an individual as a percentage of his/her net income per month. It is a true reflection on one’s disposable income and indicates his/her repayment capacity. The ideal FOIR in banking terminology that lenders prefer when assessing loan applications is between 40% and 50%. For individuals with high net worth and high income, the FOIR can go up to 70 to 75% based on lender policies.
Fixed Obligation to Income Ratio = Sum of all fixed monthly obligations/Net salary per month x 100
Monthly obligations includes regular monthly expenses, EMIs towards existing loan repayments, Credit card bills, other debt obligations if any, Rent payments and other recurring living expenses. You should keep all fixed obligations, including EMIs on the new loan applied, restricted to around 50% of the net monthly income. For high income earners they can stretch the total monthly obligations to as high as 75% depending on their lifestyle and lenders policies.
Lending institutions will prefer borrowers with less FOIR as it increases the repayment capacity of the borrower and the chances of defaulting on monthly EMI decreases.
Let’s look at a simple example to understand this important concept which determines a borrower’s eligibility for loan. Assuming a borrower’s monthly income is Rs. 1 lakh. Considering a 50% Fixed Obligation to Income Ratio (FOIR), the borrower can pay an EMI of Rs. 50,000 per month. Assuming he can get a loan @ 6.80% p.a for 25 years than he is eligible for a loan of Rs. 72.03 lakhs !
Take a look at the grid below to get an idea of home loan eligibility for various income levels*
|Monthly Income (in Rs)||Home Loan Eligibility (in Rs)|
(*The above eligibility is taken from HDFC Home Loans and based on the assumption that borrower is of Age 30, Interest rate is 6.80% and tenure of the loan is 25 years)
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