With several approvals and more than a few eligibility criteria, procuring a home loan can be a tiresome process even for working individuals. For senior citizens who have retired from their job, it may seemingly be impossible for them to obtain a home loan. Quite naturally, it is a risky affair for lenders to loan money to retirees. This is so because they do not have a steady source of income. However, there are ways in which a pensioner can obtain a home loan.
Tips on How an Individual can Obtain a Home Loan after Retirement
Assigning a Co-Applicant – A pensioner’s chance of availing a home loan increases considerably if he/she adds an earning individual as a co-applicant. By applying children or spouse as a co-applicant, not only does the chances of obtaining the home loan increase, but the total loan amount increases as well.
Besides the benefits mentioned above, adding a co-applicant can also help you gain tax benefits.
Limit Your Applications – One of the most important factors that banks keep in mind before approving your home loan is your credit score. Your credit score also plays an important role in determining the rates of interest on the home loan. Having your housing loan application rejected causes a decline in your credit score, causing all future loan applications to likely get rejected.
As an alternative, you can always visit online marketplaces that help you compare loan details across all banks, comprehend if you are eligible to apply for a particular loan, and then apply for it only if you are certain about it.
Apply for a Secured Loan – A secured loan is a loan that is backed by an asset. These assets are used as collateral in order to obtain the loan. In the event that the borrower fails to pay the loan, the asset provided will be compromised to make up for the missed payments. A secured loan is easier to obtain that an unsecured loan, thereby allowing the pensioner to avail a home loan easily.
Choose a Lower Loan to Value (LTV) ratio – LTV ratio is basically the ratio between the amount of the property financed by the bank via the home loan in comparison to the finance the borrower would have to use as down payment for the house. For instance, if the property is valued at Rs.1 crore, and the lender loans you an amount Rs.80 lakh as home loan, the LTV ratio is 80%. Choosing a lower LTV will increase your chances of obtaining the loan and will reduce the burden of EMI as well. The lower EMI will also weigh during the process of approving the loan. A lower EMI will give a pensioner a better chance of obtaining the home loan.
Use an EMI Calculator - With technology amalgamated into banking and finance, it is now simply to figure out the Equated Monthly Instalment (EMI) that an individual has to pay towards a home loan. Retired individuals can use this to their advantage to estimate the monthly outflow of cash that they would have to incur to pay for the home loan. Understanding this before applying for a loan reduces the changes of rejection as pensioners can apply for a loan, after doing adequate research, based on their repayment capacity.
By typing in basic details like rate of interest, loan tenure, loan amount, down payment, etc., the EMI calculator will gauge all the information and provide you with all the details of the loan. This includes details like the total interest you would have to pay for the home loan, what the principle amount is, and naturally, what your Equated Monthly Instalment (EMI) payable towards the loan is going to be.
As it is understood, a minor variation in interest rates on a particular home loan can have a major impact on the total interest payable towards the same. Therefore, it is vital to study the various types of loans available in the market, the interest rates on these loans, etc. before narrowing down and choosing a particular home loan. One must make sure to use the several online marketplaces that help compare loan products from different banks, which is sure to help you obtain the best possible home loan that suits your requirement.
Hurdles Faced by Retired Individuals Looking to Avail a Home Loan
The Loan Tenure – Many banks and other financial institutions expect their home loan customers to pay off the loan by the time they reach 65 - 70 years of age. There are a few banks, however, that provide home loans to individuals up to the age of 75. This therefore reduces the total tenure of a home loan, increasing the EMI substantially. Lenders are then forced to believe that retired individuals do not have that kind of repayment capacity, making it risky for them to approve the loan. This is definitely a burden that retired individuals face while applying for a home loan. If given a choice between someone who is 35 years old and someone who is 65, lenders are most likely going to choose the former when it comes to disbursing a home loan. This is so because the tenure of the loan would be longer, making the EMI more affordable in the case of the 35-year-old applicant.
Equated Monthly Instalment (EMI) Affordability – For any institution that provide home loans, the monthly income of an applicant is one of the most important factors taken into consideration prior to sanctioning the loan. Typically, banks favour providing a home loan to applicants whose EMI for the home loan combined with the other loans they are presently paying for do not exceed 40% – 50% of their monthly income. As the income from pension for retired individuals is only a tiny part of a his/her last drawn salary, the likelihood of a retired individual obtaining a home loan reduces considerably.
Although it is slightly more difficult for a retired individual to obtain a home loan, it isn’t impossible. The steps mentioned in this article can help guide you through the process in obtaining a home loan if you are a retired individual.