A home loan from lenders is available either on floating or fixed home loan interest rate. Once your interest rate type and EMI repayment structure are decided, you are liable to repay the home loan EMI according to the agreed rate within the specified repayment tenure.
As property costs are rising with every passing day, becoming a homeowner is extremely tough. Hence, a home loan can serve as a bridge to meet your dream of becoming a homeowner. When you submit a home loan application, your lender reviews your home loan eligibility and computes an amount that you easily can afford. Note that before applying for a home loan, you can compute your home loan affordability by using a home loan affordability calculator. Doing so provides you with the surety of availing a home loan deal.
The loan amount that you can afford depends on factors like job profile, savings, annual income, investments, credit score, monthly debts, loan repayment tenure, property tax, the applicable rate of interest, and DTI or debt to income ratio. Read on to know the 3-step process to compute your home loan affordability –
Compute your maximum home expenditure depending on your income
Most lenders adopt a baseline standard called the 28/36 rule for computing your home loan eligibility. As per the rule, you must not spend over 28 percent of your before-tax income on home loan repayment and the overall debt amount must not surpass 36 percent of your before-tax income.
For example, if your yearly income equals Rs 9 lakh per annum, your highest expense on housing must be 28 percent of 9 lakh/12 i.e., Rs 21,000 and overall debt must be 36 percent of 9 lakh/12 i.e., Rs 27,000. Thus, housing expenditures must not surpass Rs 21,000 per month i.e., 2.52 lakh per annum while your overall debt amount must not surpass Rs 27,000 per month i.e., 3.51 lakh per annum.
Find out the DTI (debt to income) ratio
Your DTI or debt to income ratio is computed as the overall monthly debt repayments/gross monthly income. Hence, your maximum monthly housing payment equates DTI X monthly income – monthly debt repayments.
Compute your maximum home loan cost
Your maximum home loan cost is computed as (available amount – fixed expense)/ (percentage down + variable expense).
Ending note
Before you apply for a home loan, make sure to determine your home loan eligibility. This can also be done using the home loan affordability calculator. The home loan calculator asks for basic details like your salary, required loan amount, preferred tenure, salary, interest rate, any other debt, etc. Once you input the data, the calculator displays various lenders that are willing to offer you a deal on the home loan. You can easily compare amongst distinct lenders to select the one offering a suitable deal.
