1. What is the Loan Eligibility Formula?

The 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 rearranged to solve for principal.

2. How Does the Calculator Work?

The calculator uses the loan eligibility formula:

Where:

• \( P \) — Eligible loan amount (USD)
• \( PMT \) — Affordable monthly payment (USD)
• \( r \) — Monthly interest rate (annual rate ÷ 12, in decimal)
• \( n \) — Total number of payments (term in years × 12)

Explanation: The formula calculates the present value of a series of future payments (PMT) discounted by the interest rate (r).

3. Importance of Loan Eligibility Calculation

Details: Knowing your eligible loan amount helps in home buying decisions, budgeting, and financial planning before approaching lenders.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: Does this include taxes and insurance?
A: No, this calculates principal and interest only. Your actual payment will be higher when including taxes and insurance.

Q2: How does credit score affect this?
A: Your credit score affects the interest rate you qualify for. Better scores get lower rates, increasing your eligible amount.

Q3: What's a good debt-to-income ratio?
A: Most lenders prefer your total debt payments (including new mortgage) to be ≤43% of your gross income.

Q4: Are there other loan qualification factors?
A: Yes, lenders also consider credit history, employment stability, down payment amount, and property type.

Q5: How accurate is this calculator?
A: This provides a good estimate, but actual loan amounts may vary based on lender policies and current market conditions.