Buying a home is a dream that almost everyone harbours at some point in life. However, with rising property prices, it has become extremely difficult to buy a home entirely on your savings. And, this is where a home loan comes to your help. A home loan can be availed on the basis of your income earning, repayment capacity and value of the underlying property. However, before deciding on the property to buy and availing a loan, it is extremely critical to understand your eligibility for a home loan. Here are the key eligibility factors that are to be considered before planning to avail a home loan.
Home Loan Eligibility Criteria
Eligibility criteria for a home loan may differ from lender to lender, but the general consensus is that loan approvals are mainly dependent on your credit score and history, income, repayment capacity, property value and your existing relationship with the bank you’re applying with.
To apply for a home loan, the following eligibility criteria has to be met:
1. Age: Banks require the applicant to be a minimum age of 18 years and not more than 70 years of age. Younger borrowers can easily get a loan for a longer tenure, while borrowers in late 40s or 50s, you may find it difficult to avail a long tenure loan as they approach retirement.
2. Income: You must be earning a regular income as it reflects your ability to repay your EMIs on time. You could be a salaried employee, self-employed professional such as a doctor or a businessman running your own business or company. As long as you have documents to show a steady income, banks will approve your home loan application subject to the condition that you meet other eligibility conditions.
3. Loan tenureOpting for a longer loan tenure means a lower EMI which in turn increases your ability to service a higher loan amount and hence, your loan amount eligibility. However, one should bear in mind that longer tenure entails paying a higher amount of interest over the loan tenure.
4. Credit scoreA minimum credit score of 650 and above is considered suitable while applying for a home loan in India. You run a high risk of rejection on loan application with a credit score of below 650.
5. Fixed Obligations to Income Ratio (FOIR): It is an important parameter which banks use to determine your home loan eligibility. FOIR takes into account all the fixed obligations that a borrower is supposed to pay regularly on a monthly basis including rental income, existing EMIs and estimated EMI on the proposed loan and requires it to be limited to 50% of your net take-home monthly income. Or in other words, banks assume that you need around 50% of your income for living, with the rest available to service your EMIs. Before issuing a loan, banks also check your credit reports to get details of all other existing loan obligations.
6. Property value: Banks also limit the value of loan up to 75- 90% of the property. Hence, banks calculate your home loan eligibility on the basis of both FOIR and LTV and calculate your loan amount eligibility at the lower of the two.
7. Employment sector:Besides having a regular source of income, your employment sector matters too. Banks consider certain industries and employment sectors riskier than others and are hesitant to lend to customers from these sectors. If you are working with a reputed and decent turnover, then you can expect to get loan easily and at lesser interest rates.
8. Property title and location:Before approving a home loan, banks and other financial institutions do a technical evaluation of the property which includes checking for the property value, the age of the property, sanction plan, area of the property, etc. The builder and the property against which you take the loan should be approved by banks. Banks avoid funding against the property that is more than 20-25 years old. Also, if your property is not constructed as per the sanction plan or is unsaleable due to any reason, then the bank reserves the right to reject your home loan application. Whenever you buy a property, make sure to collect the complete chain of titles from the seller as this is one of the most important property documents checked by all banks.
How to improve your home loan eligibility?
Here are a few tips that can help you improve your home loan eligibility:
1. Clear outstanding dues: Make sure that all your old debts and outstanding dues have been cleared before applying for a home loan. This will improve your credit score and history, which will go a long way towards increasing your chances of getting your home loan application approved.
2. Maintain a healthy credit score: Make sure you are making regular payments every month without fail on your loans and even credit cards. Stay consistent and do not default on any of your payment.
3. Opt for a longer tenure: Choose a longer tenure so that you aren’t burdened by heavy EMIs. This will certainly increase the chances of you getting a home loan and also increase your chances of getting a higher loan amount
4. Add a Co-applicant: If you apply for a home loan with another family member, provided that he/ she is also earning a steady income, then you have a better chance of getting a home loan approved.
5. Disclose rental and other income: Higher income enhances your home loan eligibility. If you are earning income through sources such as rent, then disclose the entire income with complete proof as it can increase your eligibility for a high loan amount. How to calculate your home loan eligibility?
The best way to calculate your home loan eligibility is by using online home loan eligibility calculators. You can visit the website of your desired lender or use the online eligibility tools of leading online loans marketplaces. The benefit of using calculating eligibility by calculators of online marketplaces is that they allow you to get multiple loan offers from their banking partners as opposed to getting a single offer from a bank’s website. For instance, a calculator on HDFC Bank’s website will show you results only on the basis of HDFC’s credit policy, while that on a marketplace like MyLoanCare will show your eligibility estimate based on the credit policy of its 25+ partner banks. These tools require you to input your personal and income information as well as loan requirements to give you an estimate on a) whether you are eligible for a loan or not, b) If eligible, for how much loan amount and c) estimated EMI that you need to pay at different tenures and interest rates.
Some of the inputs required for the calculation are age, income, profession, employer name, total years of work experience and years of experience in current employment, property value, type of property and location of the property, past obligations and amount of loan requirement. Once you have used the tool to estimate your eligibility, you are so much more prepared and confident in applying for a home loan with a few shortlisted banks as you have a fair understanding of your eligible loan amount, monthly EMI, tenure, interest rate and other charges etc. This also allows you to ask relevant questions to your lenders at the time of loan processing, reducing the scope of a wrong decision.
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