1. What is the Home Loan Eligibility Formula?

The home loan eligibility formula calculates the maximum principal amount (P) you can borrow based on your affordable monthly payment (PMT), interest rate (r), and loan term (n). It's derived from the standard loan payment formula solved for principal.

2. How Does the Calculator Work?

The calculator uses the home loan eligibility formula:

Where:

• \( P \) — Principal loan amount (USD)
• \( PMT \) — Affordable monthly payment (USD)
• \( r \) — Monthly interest rate (decimal)
• \( n \) — Total number of payments (months)

Explanation: The formula calculates the present value of an annuity (the loan) based on regular payments, interest rate, and term length.

3. Importance of Loan Eligibility Calculation

Details: Calculating your maximum loan amount helps in budgeting and home shopping by determining what price range you can afford based on your income and financial situation.

4. Using the Calculator

Tips: Enter your comfortable monthly payment, the annual interest rate, and loan term in years. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How is monthly payment determined?
A: Typically, lenders recommend your housing payment (including taxes and insurance) should not exceed 28% of your gross monthly income.

Q2: What interest rate should I use?
A: Use current market rates for the type of loan you're considering (fixed or adjustable). Rates vary based on credit score and market conditions.

Q3: How does loan term affect eligibility?
A: Longer terms (30 years vs 15 years) allow you to qualify for larger loans but result in more total interest paid over the life of the loan.

Q4: Are there other factors in loan approval?
A: Yes, lenders also consider credit score, debt-to-income ratio, employment history, and down payment amount.

Q5: Should I borrow the maximum amount?
A: Not necessarily. Consider your overall budget, future expenses, and financial goals before committing to the maximum loan amount.