# How to Calculate Your Home Loan Affordability?

By Finserv MARKETS - Jul 26,2019

People avail a home loan from a banking institute or any other financial institute on a fixed or floating interest rate. You are liable to repay the loan amount in the form of EMIs as per the agreed interest rate and within the specified tenure.

As property rates are increasing with each passing day, owning a house in India has become very difficult. Hence, home loans act as a financial bridge to fulfil the dream of owning a home for many families in India.

When you apply for a home loan, your lender will check home loan eligibility of your application and calculate an amount that you can afford. You yourself can calculate your eligibility by using home loan eligibility calculator. The amount you can afford is dependent on factors such as:

• Job profile
• Annual income
• Savings (for a down payment)
• Investments
• Monthly Debts
• Credit score
• Loan tenure
• Property tax
• Debt-to-income ratio (DTI)
• Applicable interest rates

Hence, before you apply for a home loan, it is recommended that you calculate home loan affordability on your own. Don’t know how to calculate home loan affordability? Well, this article will explain to you just that.

## Calculating Home Loan Affordability

Here is a 4-step process that will help you calculate home loan affordability.

### 1: Calculate the maximum housing expense based on your income

Most of the lenders follow a ‘baseline standard 28/36 rule’ as a home loan affordability rule. According to this rule, you should not be spending more than 28% of your pre-tax income on a home loan payment and the total debt amount should not exceed 36% of your pre-tax income. This is calculated as – Maximum Housing Expense = 28% * Annual Income / 12

For instance, if your annual income is ₹ 9,00,000 per annum then your maximum housing expense should be 28% of 9,00,000/12 which is ₹ 21,000 and total debt amount will be 36% of ₹ 9,00,000/12 which is ₹ 27,000. Hence your housing expenses shouldn’t exceed ₹ 21,000 monthly (₹ 2,52,000 per annum) and your total debt amount shouldn’t exceed ₹ 27,000 monthly (₹ 3,51,000 per annum).

### 2: Find the Debt to Income (DTI) ratio

Your Debt to Income ratio (DTI) is calculated as Total Monthly Debt Payments / Gross Monthly Income. Thus, your Maximum Monthly Housing Payment = DTI * Monthly Income – Monthly Debt Payments

### 3: Calculate the maximum loan payments as per expenses

These will include your principal amount, interest rate, insurance and tax amount. The total expense amount is then deducted from your maximum monthly housing payment which was calculated before. This result will help you understand the maximum Principal-Interest (PI) payment as per your expenses.

It is noteworthy that the interest rates on home loans are dependent on the Marginal Cost of Lending Rate (MCLR). All financial institutes offer attractive home loan interest rates to their clients. With fixed interest rates, you will have to pay equal EMIs throughout your repayment tenure. Whereas, with floating interest rates, depending on the market conditions the EMIs tend to change with time.

### 4: Calculate the maximum home loan price

Maximum Home Loan Price is calculated as [Available Amount – Fixed Costs] / [% Down + Variable Cost]

Lastly, all the obtained results are represented in the form of a sharp graph – wherein the spreadsheet highlights the limiting factors such as income, down payment, taxed, insurance and others.

## A Final Thought

We suggest you choose a lender that offers bespoke loan solutions that are best suitable for your needs. With a Bajaj Finserv home loan available on Finserv MARKETS, you can benefit from features like low EMI, minimal documentation, bespoke loan solutions and much more. The loan application is approved almost instantly and the loan amount is credited in your account within 24 hours.

What else do you want? Apply for Bajaj Finserv Home Loan with us, today!

Finserv MARKETS, a subsidiary of Bajaj Finserv, is a one-stop digital marketplace that has been created for consumers on the go. It offers 500+ financial and lifestyle products, all at one place. At Finserv MARKETS, we understand that every individual is different. And that’s why we have invested in creating a proposition – Offers You Value. A value proposition that ensures you get offers which are tailor made for you. We also offer an amazing product range and unique set of online offers across Loans, Insurance, Investment, Payments and an exclusive EMI store. Be it in helping you achieve your financial life goals or offering you the latest gadgets, we strive to offer what you are looking for. From simple and fast loan application processes to seamless and hassle-free claim-settlements, from no cost EMIs to 4 hours product delivery, we works towards fulfilling all your personal and financial needs. What’s more! Now enjoy the same benefits in just one click with our Finserv MARKETS App.

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Bajaj Finserv Direct Limited ("BFDL") is primarily engaged in distribution of financial products and services through its digital platform (“Bajaj Finserv MARKETS”) and inter alia renders services of customer acquisition, providing preliminary credit support activities, fulfilment services and post-acquisition customer services to Banks, NBFCs, HFCs. BFDL is also a registered Corporate Agent (Composite) under valid IRDAI registration number: CA0551 valid till 10-Apr-2024 for solicitation and servicing of Insurance Products. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522