How banks arrive at eligibility of home loan applicants
Vijay is a maintenance engineer with a private firm. His monthly takehome salary is around Rs 35,000. With many public sector banks offering singledigit interest rates, Vijay feels this is the best time to invest in his dream house. A two-bedroom house on the outskirts costs about Rs 16 lakhs. Will any banker lend him this money? Is he eligible for a home loan of Rs 16 lakhs?

There are numerous factors that banks take into consideration when computing your loan eligibility. Age of the applicant, his salary, repayment/credit history, savings, profession, location of property, health condition and other debts have a direct bearing on the loan amount sanctioned. Some professions are categorised as negative or risky by the lenders. People in such professions may find it difficult to get a loan sanctioned. On the contrary, some jobs are considered more stable with lesser probability of default. They are on the preferred list of most lenders.

It is imperative that the property an applicant wishes to purchase falls within the geographical limits as defined by the bank. As a thumb rule, banks will lend to applicants who can set aside 40 percent of their monthly income towards their home loan repayments. Based on this, an individual's loan eligibility is calculated. It is assumed that a person who earns more can set aside more money towards his EMI repayments.

How does a bank compute your loan eligibility?

Most loan eligibility calculators available on the Internet are based on a formula. The home loan eligibility, in lakhs, is arrived at by dividing the amount available for the loan repayment with the borrower by the loan installment per lakh for the given tenure.

The simplest way to increase your loan eligibility is by increasing the loan tenure. Consider Vijay's case. At 9 percent rate of interest and for a tenure of 10 years, banks will sanction him not more that Rs 12 lakhs. However, for a greater tenure of 20 years his loan amount shoots up to Rs 18 lakhs. However, the longer the tenure of the loan, greater is the cost of borrowing.

Applying jointly, with your parent or spouse, increases your loan eligibility. The incomes of both applicants are combined when computing the loan eligibility. You can almost double your loan eligibility with a joint loan.