6 Mins June 30, 2022
Whether you are buying a house to live in or as an investment, it provides a sense of financial security. Having said that, the obvious question of affordability –– How expensive a house can I buy –– remains.
If you are scouting for a housing project by a builder or developer, consider only those that are within your means and look promising from a capital appreciation standpoint. Also, make sure the housing project has all regulatory and environmental
clearances in place.
If the project is already approved by your bank, chances of your loan getting approved are higher. That being said, it is better to know how much loan you can really afford so that it does not prove to be a debt burden. If the recent hikes in
interest rates are a source of worry and if you are wondering whether you will be able to afford your dream house, don’t worry. Read on to find out how to calculate your home loan affordability.
Home Loan Calculator
You can find out your affordability by using the Home Loan Affordability Calculator. This calculator can be accessed online and help you get a fair idea of how expensive a property you can afford. You
will have to enter details such as your net monthly income, the down payment you can pay, the home loan amount you require, the interest rate, and the tenure of the loan.
You can find out your affordability by using the Home Loan Affordability Calculator. This calculator can be accessed online and help you get a fair idea of how expensive a property you can afford. You will have to enter details such as your net
monthly income, the down payment you can pay, the home loan amount you require, the interest rate, and the tenure of the loan.
Other than the home loan interest rate and tenure, factors that will determine your home loan eligibility include:
- Your current age
- Your net monthly income
- Current EMIs you are servicing
- Your current financial position i.e. your savings/investments and other assets
- Your credit score
[Also Read: What Type of Home Loan is the Best one for You?]
Don’t go overboard
Given that a home loan is a long-term commitment, you need to be sure of how much home loan you can really afford. If you are earning well, can arrange a higher amount for the down payment, and don’t
have too many loans to repay; you may afford a higher loan amount as home loan. But as a general rule and in the interest of your long-term financial wellbeing, the EMIs you pay on all your loans should not exceed 35%-40% of your Net Take
Home (NTH) pay.
As a prudent loan planning exercise, know how much will be the EMI on your home loan using the Home Loan EMI calculator. This will help you assess whether you can repay the home loan
comfortably or not.
If you apply for a very large home loan, which is beyond your repaying capacity, the bank may not approve it. The bank will always assess your repayment capacity or creditworthiness before granting you a home loan.
Five tips to improve your home loan eligibility:
1) Avoid applying for too many loans viz. Personal Loan and car loan, particularly of higher amounts before you apply for a home loan.
2) Do not go overboard on using your credit card and repay your other loans (if any) on time.
3) Consider adding a co-applicant (as Financial co-applicant) . As incomes of both applicants will be considered together, your chances of
getting a higher loan amount may increase.
4) There may be errors in your credit score, such as an earlier loan that has been paid off, but still showing in the report as pending. These errors could impact your home loan eligibility,
hence, get them corrected.
Your home loan application will be scrutinised by the bank by studying documents such as Income Tax Returns (ITR), bank statements, salary slips, Form 16, credit score, among a host of other personal documents before it grants you a home loan.
You can find out the entire list of home loan eligibility and documentation required.
If you are deemed eligible, you will get approval for a specific loan amount based on your requirement, repayment capability and the value of the property. And once the entire process is completed, the bank will disburse your home loan.
A home loan offers tax benefits: Both the principal and interest repaid on the home loan are eligible for a deduction under Section 80 C and Section 24(B) of the Income
Tax Act, 1961. The principal amount is eligible for exemption up to Rs 1.5 lakh while the interest component is eligible for exemption up to Rs 2 lakh annually. All you have to do is borrow sensibly for a house that you can afford and timely
repay the EMIs on the home loan.
Disclaimer: This article has been authored by PersonalFN, a Mumbai based Financial Planning and Mutual Fund research firm. Axis Bank doesn't influence any views of the author in any way. Axis Bank & PersonalFN shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.