Home loan eligibility is a critical buzzword if you are planning on applying for a home loan anytime soon. Many a time, people make the cardinal mistake of applying for home loans without assessing their own eligibility for the same. Eligibility is what determines whether you get the home loan sanctioned or not and it is the first thing ascertained by the lender prior to taking the process forward. Also, do not think that only a good credit score is enough to get you the home loan. This is one of the most vital aspects but there are other parameters and factors influencing home loan eligibility as well.
Here’s taking a look at some of the factors that impact home loan eligibility:
- Tenor- The tenor of the loan is one aspect that affects overall eligibility. The best way is to have a steady balance between how much you can afford to repay every month and the tenor of the loan. The longer the loan tenor is, the lower is the EMI. The shorter the loan tenor is, the higher your monthly EMI. Applicants should check eligibility requirements of financial institutions and use an EMI calculator to work out what is the best fit for them, considering their financial position and budget. Prior to choosing the loan tenor, calculate how much you can comfortably repay every month and surpluses down the line.
- Age of the Applicant- The age of the applicant is another factor influencing home loan eligibility to a large extent. Many people think that they can easily avail of home loans with co-applicants. However, the co-applicant also has to meet the criteria of the financial institution. The tenor of the home loan will majorly be worked out on the basis of the elder co-applicant’s age amongst the two or more applicants in all. The loan tenor will be limited to 10-15 years in case the co-applicant is 50-55 years of age in most cases. Individual borrowers should understand that the younger your age, the higher your eligibility.
- Income, Expenditure & Debt Levels- Your monthly income will naturally impact your home loan eligibility greatly. In case of salaried professionals, lenders will assess their age and monthly salary along with the number of working years of the person concerned. The lower one’s age, the higher his/her overall eligibility as mentioned earlier. The repayment ability will be ascertained along with one’s profession, employer, work experience and so on. Additionally, the lender will seek to assess your expenditure including the number of dependents that you have and also your current debt which includes other loans, credit cards and so on. The lower your debt in proportion to your income, the higher your chances of landing the home loan.
- Credit history- Financial institutions will also analyse the borrower’s credit report and score. Your creditworthiness will be ascertained through your credit history over the years. In case you have defaulted on loans and not repaid them on time, your eligibility will come down automatically since your credit score will be on the lower side. As a result, repaying loans and making payments on time is a must if you wish to maintain a healthy credit score. Borrowers should try and repay unsecured debts like personal loans and credit card dues as much as possible in order to boost their credit scores and also keep in mind that the loan to value (LTV) ratio should be lower in order to keep the DIR (debt to income ratio) in good shape. 60% of one’s net monthly income is usually considered and 60 times of this amount is what one can get as the loan in some cases.
Now that the key factors affecting home loan eligibility have been listed down, here’s taking a look at 5 ways to boost home loan eligibility:
- Choose the loan tenor and amount carefully in proportion to your income- Financial institutions will analyse your monthly income in order to assess whether you can easily repay the home loan EMI in tandem with meeting other expenditure. In case your net income post meeting all obligations is lower than the EMI expected for the home loan, your application may be rejected. As a result, choose the loan amount wisely along with the tenor. By increasing the loan tenor, you can lower the monthly EMI and scale up overall eligibility. However, do bear in mind that a higher tenor entails paying more interest on the home loan.
- Reduce current debts- As much as you can, clear out your existing loans and other debts prior to applying for your home loan. This will automatically boost your Debt to Income Ratio. You can always think of increasing EMI amounts or monthly payments for other loans and close them out early before applying for a home loan. When your repayment ability is being measured by al ender, the existing EMI amounts will be deducted from your net income. Make sure these loans are closed and the no-due certificate is collected. Also, make sure that this information is updated in your CIBIL score and report.
For example, if your net monthly income is Rs. 40, 000 and you already repay existing loans with Rs. 10, 000 every month, then the lender will take your repayment ability to be just Rs. 30, 000 after deducting the current loans even if there are only a few years or months remaining for the latter to be closed. Closing existing loans will make you eligible to get a higher home loan amount.
- Joint Home Loans are a good solution- It may be a good idea to apply jointly for a home loan with your spouse or any other co-borrower/applicant. This naturally increases home loan eligibility. Your income will be combined with that of your co-borrower and eligibility will be worked out accordingly. If your spouse is earning, you should certainly consider a joint home loan since eligibility will increase and it will be easier to repay the loan together.
- Step Up Loans can also be considered- Many lenders offer step up loans which may help you increase home loan eligibility initially. These loans are tailored for customers who are expecting their monthly income to go up over the next few years but cannot repay higher EMIs at present. With step up loans, borrowers initially pay lower home loan EMIs which increase steadily over the years with the assumption that the income of the borrowers have also gone up in this duration. Professionals like CAs, architects and doctors and other borrowers who expect to settle down over the next few years with higher earnings can opt for these home loans in order to scale up eligibility.
- Adding an income source- In case your net monthly income is lower than the threshold required to meet the eligibility criteria, you can think of adding another income source such as interest income from your deposits or rental income from another unused property or even show the employer’s bonus in order to clear the eligibility threshold. You may also show income from freelance work for this purpose.
These are key tips that will help you enhance your home loan eligibility and you will naturally increase your chances of getting the loan sanctioned.