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In Home Loans, the principal amount is the original loan amount a borrower receives as a sanctioned loan. Once the loan tenure starts, the principal amount also refers to the amount a borrower still owes to pay. For instance, if a borrower opts for a Home Loan, and apply online and receives a loan amount of Rs 50 Lakh, their principal loan amount is Rs 50 Lakh. If they pay off Rs 10 Lakh during the loan tenure, the principal balance is Rs 40 Lakh. Let’s find out more about the principal amount in Home Loan and the factors that affect it.
What Does the Principal Loan Amount Mean?
A housing finance company offers the necessary finance to buy or construct a property, technically termed the Home Loan principal amount. Simply put, the principal is the amount of money a lending institution finances to a borrower to buy a property. The property could be a new construction, pre-owned, or under-construction property. The loan amount could also be used to buy a piece of land or for its planned construction.
How to Calculate the Principal Loan Amount?
The principal is the loan amount an individual borrows to purchase a property. Most lending institutions fund up to 80-90% of the property’s market value in a Home loan. The borrower has to pay the remaining balance from their pocket as a down payment for the property purchase. Therefore, the property’s market price and the borrower’s down payment are the most significant determining factors for the principal loan amount.
Also Read: What Is a Home Loan Balance Transfer And Why You Should Consider It?
A Housing Loan eligibility calculator is an essential tool that helps calculate the loan amount. An aspiring borrower may obtain their possible loan amount from a lending institution using its calculator. For this, they just have to follow these steps to calculate the principal loan amount:
- Open an eligibility calculator available on your preferred lender’s website
- Select your employment type, whether you are a salaried employee, a self-employed professional, or a self-employed non-professional
- Enter your monthly in-hand salary and current EMIs you are already paying each month
- Select a loan tenure with budget-friendly EMIs
- Choose the interest rate
The calculator will instantly display the loan amount the user is eligible to borrow. Now, it’s up to the borrower to apply for a good loan to buy the property they want.
Factors Affecting the Home Loan Principal Amount
Finance companies consider various parameters to determine the principal amount. These include age, city of residence, credit history, income, etc. Take a look at the most important factors that determine Home Loan principal amount:
- Credit Score: A decent credit score directly affects the principal amount at the time of Home Loan apply online. It largely depends on factors like the applicant’s repayment history, existing loans, outstanding balances, and kinds of debt in their portfolio. Lending companies use these numbers to measure an individual’s credibility and assess their repayment capacity before approving their loan amount.
- Current Financial Obligations: Numerous loans and debts play an important role in Housing Loan eligibility. However, lending institutions’ outstanding dues and repayment habits are a significant concern in getting higher loan amounts at lower interest rates.
- Income: Most housing finance companies set a minimum income requirement based on the city the applicant resides in. A higher income often attracts a larger principal amount.
- Employment: An individual’s employment status determines the principal amount. A job in a reputed public or private company or MNC deems an individual more reliable as a borrower. Similarly, self-employed individuals with stable incomes also get bigger loan sanctions than those with unstable jobs or businesses.
- Property: The property the borrower wants to purchase and the down payment they make are also crucial concerns for lenders. Since the property will serve as a security against the loan, the house that is worth more will get a larger principal amount as a loan.
Maintaining a decent credit score, reducing financial obligations, and applying for an adequate loan are the best tricks to maximise the principal amount for the home purchase. Equipped with the knowledge of factors affecting the principal amount, use a Housing Loan eligibility calculator to borrow an affordable amount sufficient for the intended purchase. It will simplify the Home Loan apply online process and make the funds available earlier without hassle.
