Check Eligibility for Home Loan and Calculate EMI by Online Calculator

Owning a house is not less than a dream come true. However, purchasing a property is easier said than done; given its size of the investment. Contrary to the common misbelief, financial institutions do not provide the whole price of the property. Instead, you have to pay at least 20-30% of the property’s market value from your pocket. So even if you cannot afford the entire price of the house; you will have to acquire a minimum of 20% to 30% of its cost. Subsequently, you can file a home loan application to HDFC and request a home loan amount equivalent to 70-80% of the property’s market value.

But you will not get the amount straightaway post loan application. Financial institutions will check your eligibility and calculate if you are eligible for that loan amount. This eligibility calculation is based on many factors.

How does HDFC Bank calculate your eligibility?

Every financial institution will approve your home loan application only if they are assured of the repayment capacity. The biggest factor contributing to the repayment capacity is the EMI. HDFC Bank makes sure that you can afford the loan by using your income as the base for calculation. They calculate the EMI in such a way that it does not exceed 40-50% of your total household income (minus your obligations towards other debts). Here is an example to help you understand this calculation better.

If your income is ₹1,10,000 and you are already paying an EMI of ₹10,000 towards other loans, then ideally your EMI must fall in the range of ₹40,000 – ₹50,000. This is how even you must calculate your EMI using the HDFC home loan calculator, i.e., you must keep adjusting the loan amount and tenure in a manner that the EMI turns out to be in the range of 40-50% if your income.

How does HDFC Bank calculate net income?

It is very easy to check your income, i.e., through your salary slips, income tax statements or through the monthly invoices generated (in case of professionals). But there is no full-proof way of determining your expenses and calculate the net income. For this reason, lenders use a concept known as FOIR.

FOIR or Fixed Obligations to Income Ratio was introduced to help financial institutions estimate the monthly expenses of each borrower, and measure her/ his repayment capacity. FOIR is the pre-determined percentage of an individual’s ‘net’ income. Lenders make sure that the FOIR is not more than 40-50% of your monthly income.

FOIR calculation to determine your loan amount eligibility

An ideal home loan amount is calculated based on 50% of your monthly income. Your liabilities will be deducted from the remaining amount. this will then be divided by the per-lakh EMI to calculate the home loan amount you are eligible for. It is thus evident that you are eligible for a higher EMI if your income is high (given the disposable amount of revenue available). Here is an example to help you understand FOIR calculation to determine the loan amount you are eligible for.

To start with the FOIR calculations, you will first have to find out the EMI you need to pay per lakh on a loan. You can use an EMI calculator for this calculation. If you want to opt for the pre-approved HDFC loan, then you can use the HDFC insta jumbo loan calculator. Say you want an interest rate of 8.5% and would like a repayment tenure of 20 years. Enter 1,00,000 as the home loan amount (since you are calculating the EMI per lakh), 8.5% as the interest rate, and 20 years the tenure in the online EMI calculator. The result will display that your EMI will be ₹868 in this case. Now use this EMI amount to calculate the loan amount you are eligible for using the FOIR calculations. For this let us assume that your monthly income is ₹1 lakh and you have no underlying financial liability. Now for a 20-year tenure with an interest rate of 8.5% and EMI of ₹868, your FOIR calculations will be as follows:

50% of 1,00,000 – 0/868 * 1,00,000 = ₹57,61,542

Therefore, the maximum amount of loan you will be eligible for will be ₹57,61,542.

FOIR calculations in case you have underlying debts

For the same example that is given above, the calculations will be completely different if you have underlying debts. if you are servicing a car loan (or any other loan) of ₹15,000 per month, the calculations will be as follows:

50% of 1,00,000 – 15,000/932 * 1,00,000 = ₹40,33,079

Here, you will be eligible for a home loan amount of only ₹40,33,079. As you can see, having an underlying debt of ₹15,000 per month reduced the loan amount you are eligible for by ₹17,28,463!

Additional Read: Tips to Manage Your Home Loan EMI’s in an Efficient Manner

How is EMI calculated?

As mentioned above, you can directly use an HDFC jumbo loan calculator to calculate the EMI. But if you want to know the universal formula to calculate the EMI, then here it is:

EMI = {P x R x (1+R) n} / {(1+R) n – 1}
P is the principal amount,
R is the rate of interest (monthly),
n is the repayment period or tenure.

Lenders normally mention an annual rate of interest. You can convert the yearly rate to monthly by dividing the above-given formula by 12. If you want to circumvent all these manual calculations, then you can use the EMI calculator.

HDFC jumbo loan calculator

The calculator helps you calculate EMIs in a second and also aids in determining your eligibility. The calculator displays the monthly payment, total interest payable, and the total payment (interest+ principal) for each input. Moreover, a colored pie-chart will be displayed to help you understand the proportion of principal amount as compared to the interest that you will be paying for a set of variables. The calculator also displays the amortization schedule.

You should consider yourself eligible for the home loan if the EMI denoted by the calculator is less than 50% of your monthly income.

Author Since: Jan 17, 2019

Anoop Bansal, a professional Chartered Accountant based in the National Capital - Delhi. I have worked for the top-notch Indian and International banking firms for the past 10 years. Currently, I work at blog and a financial consultant for different SMEs in India. Follow me on Facebook, Twitter and Linkedin for more information.

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