You have searched for many properties online and shortlisted some good options. But have you thought of home loan eligibility? Probably not. In most of the cases, certain assumptions regarding eligibility for a home loan are made. When you apply for it, the result is disappointing. An outright rejection or a much lower sanction amount leaves you disheartened, even though you think you are earning enough to bear the EMI burden.
Before such an unfavorable outcome haunts you, it is wiser to know how much you are eligible to apply for and the parameters usually followed by the banks in this regard.
Your high credit score gets you a better interest rate and even a higher loan amount from the bank. A CIBIL score of 750 or more is considered an ideal score. Get your credit score checked once in every six months. Be regular in the payment of your earlier dues with banks. Any default in repayment, including a missed credit card bill payment or an overdue amount reflects poorly on your credit history. You are liable to get a rejection of your home loan application as the banks rely heavily on your CIBIL score to assess your creditworthiness.
Home Loan Eligibility
Look into the core factors affecting your loan eligibility. Some lenders do not employ all the factors, but it is a good idea to understand how it is related. In simple words, it means how much loan amount you can get for buying a home – excluding the registration, stamp duty charges and the margin money you have to arrange on your own. Just because you are earning a high monthly salary, it does not mean you can take a higher loan. It is calculated on a formula and logic, as home loan has the biggest ticket size and takes much longer to pay off.
Calculating Eligibility Amount
Expenses and commitments have to be deducted from the total monthly income. After that, you must have a substantial amount to pay the home loan EMI. Banks assume that you are able to save around half of your income received in hand. It is assumed that he saves 50 percent. This saving is available for repayment of any kind of EMI.
Existing EMI burden
If there is any existing personal loan for which you are paying EMI, this amount is deducted from the monthly saving amount to calculate your capacity to bear home loan EMI. This lowers the amount you are eligible to get.
The amount of loan you are eligible for, depends on your income. This impacts your home loan eligibility to the greatest extent. The higher your income, the higher is your potential to pay a bigger liability.
If you are salaried, your income is assumed to be more stable than that of a self-employed person or a businessman. It is easier for a salaried employee to get a loan compared to a self-employed person. Many banks ask for salary slips for a year and bank statement for at least six months in order to estimate your overall cash flows and spending habits. Proper documentation with higher declared income makes you eligible for a higher home loan.
Age of applicant
The age of the applicant matters. Paying a home loan is a long-term commitment. Banks find out how long you can pay off the EMI. A person in his 30s can pay the loan for 30 yrs, but a person who is already 50 years old will retire in a decade. He has just 10 years to repay the debt and he gets a lower amount of home loan.
The job of a loan-seeker matters. Lenders consider some professions as negative or risky. People employed in such professions find it difficult to get a home loan sanctioned.
If a person has a well-paying, stable job, then he is eligible for a higher loan amount. BPO and insurance sector jobs have lower loan eligibility because the income is uncertain and the chance of retrenchment is higher.
Public sector banks look at your relationship track record. If you have an account with the bank for a decade or more, it matters a lot. In some cases, banks directly issue a loan in multiple of your income level.
Dependents in family
If there are more members in the family, and the earning member is just one, then it is difficult to get a higher loan amount. Banks take into account this aspect while sanctioning a home loan. If there are other priorities to be taken care of, then also it bears a negative impact on your borrowing capacity.
Banks categorize various companies into A, B, C category and offer different interest rates to their employees. Employees of Infosys, TCS, Microsoft and similar companies are offered a better interest rate. Processing fee waiver schemes attract loan seekers from these reputed companies.
Increase loan eligibility
The loan eligibility is calculated on some factors. But you can take action to increase your loan eligibility.
Longer loan tenure
Your EMI depends on the tenure of the loan. If you increase the loan tenure, you become eligible for a higher loan. You are committing to pay over a longer period of time.
Foreclose existing loan
If you have any existing loan about to complete, repay it in full. Your monthly savings will go up and it increases your loan eligibility. They are confident you have more funds in your hand to bear the burden of structured debt.
Extend other loan tenure to reduce EMI
Show the bank that you have a higher amount available. If you have any other EMI going on and you cannot prepay it fully, at least you can increase the tenure of the other loan. It decreases the EMI burden and you have more money in your hand each month.
Include spouse or parents for loan application
If you include your spouse or parents as additional loan applicants, then your overall loan eligibility goes up because now there is more income to support that loan. The person you are including should have all the documents and income proof.
Additional income source
You should disclose to the bank if you have additional bonus from your employer or if you have another source of income like rental income, interest from deposits or some other business income apart from your regular income. Even if you mention that your spouse also earns, then it helps. This does not increase your loan eligibility, but it helps you get your loan approved.
Banks look at your potential to repay the future loan and there are several factors that affect it. Take some effective steps to improve your chances of securing the home loan or increasing your loan eligibility.
To know more about your eligibility of your home loan, visit MONEST.com