A Housing Loan is probably the most sophisticated loan instrument in the market today. Owing to the quantum of loan involved, the applicant of the potential borrowers has to go through a plethora of eligibility criteria to determine the loan amount and other terms. As a loan aspirant, we are always hopeful getting the loan amount we want. On the contrary, you will not always get the loan amount applied for. This article is aimed at getting you acquainted with the nitty grittiest of what goes into determining “Home Loan Eligibility” and tips on how you can get a deal close to what you’re aspiring for.
Home Loan Eligibility:
It is a comprehensive process carried out for the bank to determine if the applicant is eligible for a home loan and also to make key decisions such as the loan amount to be granted & fixing interest rates. The eligibility is determined on the basis of multiple factors and is based on the paperwork supplied by the applicant. Sophisticated systems and complex calculations go into determining the eligibility.
The thumb rule for determining eligibility on the basis of the income drawn by the applicant is by subtracting all financial commitments and taking the residual income into account to arrive at a loan amount. This is just one of the aspects of determining eligibility. There are multiple factors such as the reputation and statutory approvals of the housing project, credit history and the stability factor in terms of continuity in income.
The section below throws further light on the main factors that goes into determining the home loan eligibility followed by tips on how you can work towards increasing your eligibility.
Factors Taken into Consideration to Determine Home Loan Eligibility:
- Income: Perhaps, the most crucial factor which speaks the most when you apply for a loan. The bottom line is, higher the income, better are the chances of not only getting approved for the loan but also, likeliness of getting a loan amount of your choice. As stated earlier, the residual income each month after fulfillment of all the financial commitments is also taken into account.
- Credit History: The second most important factor considered is your past and existing credit relationships with banks and financial institutions. If you’ve been late on a credit card payment or have defaulted a personal loan, it will have a negative effect on the home loan application. If you’ve had loans in the past that were successfully paid off, it adds value to your application. Therefore, staying up to date with payments loans and cards is paramount.
- Applicant's age: This factor is generally taken into consideration to determine the loan term. The younger you’re, better are your chances of getting a loan amount of your choice. Since banks have an upper cap before which the loan should be fully realized, a younger age can work in your favor.
- Source of Income: Another vital determinant where eligibility is determined on the basis of source of your income. If you’re salaried and working with a reputed company, the process becomes easier. Employees of government and PSUs get preference since they are considered to be in stable jobs. Professionals like Doctors and Architects also have an upper hand in this regard. Self-employed applicants will be required to provide multiple documents such as banks statements and ITR supporting their income.
- Existing Relationship with the Bank: If you’ve a salary account with the bank you’re seeking a home loan from, it works in your favor. Furthermore, timely repayments on loans or credit cards from the same bank adds immense value to loan eligibility since they have trustworthy relationship to approve your loan on.
Now that we’ve understood the primary factors that go into determining the eligibility, let's look at the homework you can do to increase your chances of getting a loan of your choice.
Tips to Up Your Home Loan Eligibility:
Consider paying off your existing loans:
If you have other loans such as Auto or Personal and if your capacity permits you to do so, pay off the loans to create a positive impact on your credit and also to allow more room in terms of available residual incomes for lenders to take into consideration. Doing so also helps in clearing off your loans and starting clean.
Retrieve a copy of your credit:
Before applying, get a copy of your latest credit report from CIBIL or alternate sources and lookout for your score and discrepancies (if any). If you find any errors such as incorrect personal information of a wrong entry, approach the bureau immediately to have the information corrected since they have the potential to act as spoilers when you apply for a home loan.
Add Spouse/Parents as co-applicants:
This is one of the most preferred routes taken by applicants to add weightage to the loan application. Showing your immediate family members as co-applicants, you not only add additional monetary impetus the loan application, but also provide that extra layer of security to lenders, thus increasing your monetary eligibility.
Go for a Longer Tenure:
Though the interest charges to be incurred will be higher, choosing a longer term can help you in getting a loan amount of your choice. In fact, if you’re not happy with the amount approved, speak to the representatives from the bank to confirm if you can choose a bigger term and be eligible for a higher quantum of loan.
Declare “All” sources of Income:
If you’ve other sources of income such as rentals and dividends drawn on investments, let the banker know it so that it is taken into consideration. Future Bonuses (if any) can also be discussed with the representatives to add weight to the loan application.
Choose Reputed Projects:
If you’re buying a flat or a plot of loan, make sure they are offered by reputed institutions. Projects from brands from a lesser known builder may fail to add the required trust in your application. Also inquire about exclusive offers from lenders where they tie up with reputed names to offer customized loan deals.