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 helps determine how much house you can afford based on your budget.

2. How Does the Calculator Work?

The calculator uses the loan formula:

Where:

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

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

3. Importance of Loan Eligibility Calculation

Details: Knowing your maximum eligible loan amount helps in budgeting for a home purchase, understanding your borrowing capacity, and negotiating with lenders.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: What's included in the monthly payment?
A: This should include principal and interest. Property taxes, insurance, and PMI would be additional costs.

Q2: How does interest rate affect eligibility?
A: Higher rates reduce your eligible loan amount as more of each payment goes toward interest rather than principal.

Q3: What's a typical loan term?
A: Most home loans are 15 or 30 years. Longer terms increase eligibility but result in more total interest paid.

Q4: Does this include down payment?
A: No, this calculates only the loan amount. Your total purchase price would be loan amount plus down payment.

Q5: What other factors affect actual loan approval?
A: Lenders also consider credit score, debt-to-income ratio, employment history, and assets when approving loans.