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Home Loan Eligibility Formula:
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Home loan eligibility refers to the maximum amount you can borrow based on your repayment capacity, interest rate, and loan term. It helps you understand what price range of homes you can consider when shopping for a property.
The calculator uses the present value of an annuity formula:
Where:
Explanation: The formula calculates the present value of all future monthly payments at the given interest rate, showing how much you can borrow while staying within your budget.
Details: Knowing your maximum loan amount helps set realistic expectations when house hunting, ensures you don't overextend financially, and helps with pre-approval discussions with lenders.
Tips: Enter your comfortable monthly payment (typically 28-36% of gross monthly income), current interest rates, and desired loan term. All values must be positive numbers.
Q1: What percentage of my income should go toward housing?
A: Most lenders recommend keeping housing costs below 28% of gross monthly income, with total debt payments below 36%.
Q2: How does loan term affect eligibility?
A: Longer terms increase eligibility (lower monthly payments) but result in more interest paid over the life of the loan.
Q3: What other factors affect loan approval?
A: Credit score, debt-to-income ratio, employment history, and down payment amount also significantly impact approval.
Q4: Should I borrow the maximum amount I qualify for?
A: Not necessarily. Consider future expenses, emergency savings, and potential income changes before maxing out your budget.
Q5: How often should I recalculate my eligibility?
A: Recalculate whenever interest rates change significantly, your income changes, or you're considering a different loan term.