Getting ready to purchase a house? Congratulations on your decision. But there’s a significant hurdle to cross, which is deciding how much of a home loan can you really afford.
Unfortunately, banks have a structured method and it is only after you meet their eligibility criteria that they determine how much they will lend to fund the purchase of your dream home.
Save yourself the shock and disappointment by knowing how banks determine home loan eligibility. Continue reading.
Income: The Cornerstone of Eligibility
The first and most important thing that the banks check is your income. It determines your repayment capability. A salaried person with a steady income is considered lower risk compared to a person with irregular earnings. However, selfemployed professionals or businesspeople can also be considered if they demonstrate good and consistent profits in the long run.
Most banks typically cap the loan amount at 40%–60% of your net monthly income after considering other liabilities like existing EMIs or loans. If your monthly takehome is ₹1 lakh and you’re already repaying a car loan of ₹15,000 per month, your eligibility for a home loan will be adjusted accordingly.
Pro Tip: Don’t apply without first checking with a trusted home loan eligibility calculator to estimate how much you can get. These calculators consider your income, liabilities, age, and tenure preferences to provide you with realistic expectations.
Credit Score: Your Report Card for Finances
Your credit score reflects your credit history and repayment behavior. A score above 750 is generally considered excellent and increases your chances of approval. Lower scores don’t automatically disqualify you, but they can result in a lower sanctioned amount or higher interest rates.
Banks draw your credit report from a bureau such as CIBIL or Experian when you make an application. They check for defaults, late payments, or loan inquiry repetitions. If your report reflects prudent borrowing and prompt repayments, that is a plus point.
If your score is low, consider improving it before applying. Pay off credit card debt, close unused loans, and don’t apply for multiple loans at once.
Loan Tenure and Age
Banks are like borrowers who are able to repay comfortably from their working years. For employed individuals, the majority of lenders fix the maximum age at 60 years at loan maturity time. For self-employed, it could go up to 65.
This way, a 30-year-old can quite readily secure a 25–30-year term with lower EMIs and greater eligibility. A 50-year-old, however, may be granted only a 10–15-year loan, impacting both EMI and eligible amount.
The longer the term, the larger the loan you can qualify for. But you pay more in total interest. It’s all about striking the right balance.
Existing Liabilities and Financial Obligations
If you’re already paying off a car loan or personal loan or have high credit card bills, your eligibility gets impacted. Banks subtract your monthly financial commitments from your income to assess how much room is left for a home loan EMI.
Even if your income is high, having multiple active debts can lower your eligibility or invite higher interest rates. Clearing off small loans before applying can improve your profile significantly.
Employment Stability and Nature of Work
How stable is your job? What business or industry do you work in? Are you employed with a well-known organization or operating a tried and tested business?
Banks use these questions to evaluate your risk level. Salaried employees employed with government departments, PSUs, or well-known MNCs tend to qualify for preferential loan terms. For self-employed professionals, banks may request a minimum of 3 years of stable income history and business evidence.
Frequent job changes, unexplained gaps in employment, or erratic business profits can raise red flags. Having a steady job for at least two years before applying usually works in your favor.
Property Value and Loan-to-Value Ratio (LTV)
While your financial profile is important, the property you’re purchasing plays an equally vital role. Banks conduct a valuation of the property to ensure it justifies the loan amount you’ve applied for.
Most Indian banks now lend up to 75%–90% of the value of the property (Loan-toValue ratio) based on the price of the property. For instance, if your flat is worth ₹80 lakh, you may qualify for a loan of ₹60–72 lakh.
You will have to structure the balance as a down payment, which shall have to be documented and obtained legally. A larger down payment can enhance your qualifications and can even assist in negotiating terms.
Spending and Banking Habits
Many banks also check your bank statements to gain insights into your money habits. Large monthly spending, overdrafts, bounced cheques, or large transfers to credit card accounts may be a sign of poor money management, even if your income is good.
Lenders like to witness a balance between income, savings, and expenses. Ensure that your financial track speaks responsibly in the months preceding your loan application.
Accuracy and Documentation
Inaccurate or incomplete documentation is a frequent cause of rejection or lower eligibility. Banks ask for:
● Proof of identity and address
● Proof of income (salary slips, bank statements, ITRs)
● Proof of employment
● Document of property
● Statement of existing loan or liability
Make sure your documents are recent, properly legible, and accurately portray your financial status. Avoid any inconsistencies that may create doubts.
Interest Rate and Market Conditions
Although this doesn’t directly qualify you, the current interest rates do affect your final EMI and thus your apparent repayment ability.
Most Indian banks, as of June 2025, are lending home loans at interest rates ranging from 8.25% to 9.15% per annum for salaried employees, with slightly higher rates for self-employed customers. Some institutions also provide floating-rate loans linked to external benchmarks, such as the RBI repo rate.
Increased interest rates translate to increased EMIs, which can bring down the maximum amount of loan you are eligible for. Always have a clue about prevailing rate tendencies while charting your home loan course.
Co-Applicants Can Improve Eligibility
If your eligibility is low, involving a co-applicant may enhance the chances. Spouses, parents, or even earning children can be co-applicants for the loan. Their income is combined with yours, and you can be eligible for a larger loan amount.
However, keep in mind that co-applicants are also held accountable for paying back their debts. Their credit profile and debts also impact the application, so be cautious.
Final Thoughts
Bank’s home loan eligibility criteria is no secret but if you are not prepared, you might be in for a rude awakening and disappointment. So, from the day you decide to buy a home, start working on becoming more careful with your finances, begin saving for a sizable down payment and pay attention to your credit score.
You can even use tools like a home loan eligibility calculator to understand where you stand and rectify the glitches before applying.
