1. What is Home Loan Eligibility?

Home loan eligibility refers to the maximum loan amount a borrower can qualify for based on their income, debt-to-income ratio, and current interest rates. Lenders use this calculation to determine how much they're willing to lend while ensuring the borrower can comfortably make payments.

2. How Does the Calculator Work?

The calculator uses the following formula:

Where:

• Income — Your annual gross income in dollars
• DTI Ratio — Debt-to-Income ratio (typically 0.36-0.43 for conventional loans)
• Monthly Payment Rate — Monthly payment per dollar of loan (includes principal, interest, taxes, insurance)

Explanation: The formula determines how much loan you can afford based on what portion of your income can go toward housing payments.

3. Understanding the Formula

Details:

• The DTI ratio represents the maximum percentage of your income that can go toward debt payments (including the new mortgage).
• The monthly payment rate combines interest rate, loan term, and other housing costs into a single factor.
• This calculation provides an estimate - actual loan approval amounts may vary based on credit score, assets, and lender policies.

4. Using the Calculator

Tips:

• Enter your gross annual income (before taxes)
• Use 0.43 for the standard DTI ratio (some lenders may allow up to 0.50)
• Monthly payment rate is typically between 0.004-0.006 $/month/$ (equivalent to 0.4%-0.6% of loan amount per month)
• For a more accurate estimate, consult with your lender for current rates

5. Frequently Asked Questions (FAQ)

Q1: What is a good DTI ratio?
A: Most conventional loans prefer ≤36% for housing expenses and ≤43% for total debt. FHA loans may allow up to 50%.

Q2: How does credit score affect loan eligibility?
A: Higher credit scores typically qualify for better interest rates, which lowers the monthly payment rate and may increase eligible loan amount.

Q3: Should I use gross or net income?
A: Lenders typically use gross income (before taxes) for these calculations.

Q4: What's included in the monthly payment rate?
A: It should include principal, interest, property taxes, homeowners insurance, and possibly mortgage insurance (PMI).

Q5: How accurate is this calculator?
A: This provides a good estimate, but actual loan amounts depend on lender policies, current rates, and your complete financial profile.