Crucial Factors Affecting Home Loan Eligibility

The world of housing finance opens up customised funding solutions helping borrowers fulfil their basic housing needs: be it purchasing a new plot and/or building their dream home on it, buying a ready property or remodelling an existing one. While home loans cater to every pocket size, traversing the journey – from picking the right lender to repaying the loan in full – requires a deeper understanding of the entire loan process, crucial among which is your home loan eligibility or your ability to support the loan on time until tenor completion. 

The Eligible Loan Amount v/s the Actual Loan Amount 

Several significant elements influence your eligibility for a housing loan, but before we proceed, let us first delve into what it means to be eligible for a certain loan amount and the actual figure you may be sanctioned. 

  • Eligible amount – This is the maximum sum lending institutions may agree to lend based on the applicant’s age, net earnings, credit score and other associated factors.
  • Actual amount – This is the exact loan amount that lenders will approve depending on the property’s market value, legal compliances, down payment potential, loan repayment capacity and so on. The actual sum may be lower than the projected eligibility amount. 

Factors That Affect Home Loan Eligibility 

Lenders employ a variety of parameters while deciding each applicant’s eligibility. The requirements may differ among lending institutions depending on the loan objective, for instance, whether you opt for a home loan balance transfer, a pre-approved loan, a top-up, a home renovation loan or an NRI housing loan. 

Normally, your eligibility for a house loan entails the following:

Salary-Based Home Loan Eligibility 

The salary you draw each month influences your ability to get a home loan. A steady source of income indicates good repayment capacity making loan approvals easier; regardless of whether you are a salaried employee or a self-employed professional with your own practice, such as a doctor, lawyer, or chartered accountant. 

Home Loan Eligibility Criteria for Self-Employed Individuals

Depending on the lender’s policies, self-employed applicants may need to furnish specific documentation for the home loan verification process to show consistent revenue generation from their business enterprise. In the absence of a regular cash flow, lending institutions could impose higher interest rates with more stringent terms. 

Home Loan Eligibility Based on Age

Your age is a crucial determinant that lenders consider when appraising loan eligibility. Banks and lending institutions typically offer loans to applicants between 21 years to 65 years old with the upper limit taken as the age at the time of last EMI repayment. 

Individuals in their twenties or thirties have a higher likelihood of receiving home loan approvals since they have a longer career graph to repay the loan. Their steady income flow guarantees timely EMIs minimising the lender’s risk. Meanwhile, those in their forties may be financially endowed to support bigger loan EMIs or larger down payments. However, senior applicants might have to contend with shorter tenors and lower loan amounts due to fewer professional years and diminishing financial reserves. 

Read also: What Credit Score Do I Need to Buy a House in 2023?

Calculating Your Home Loan Eligibility

It is essential to first assess your current ability, both financially and otherwise, to service a long-term house loan before you apply with your lender of choice. A home loan eligibility calculator helps determine if you can manage the debt and simplifies credit planning. You may access this financial tool online through any of the reputed banks or lending companies for free by following these steps:

  • Enter the name of the city where you want to purchase the property and its market value
  • Key in your date of birth 
  • Fill in details of your monthly salary and other financial obligations such as recurring expenditures and existing loan EMIs
  • Once you submit the required details, the calculator will compute the maximum loan amount you are eligible to borrow. 

Other Aspects that Impact Home Loan Eligibility

Apart from age and income, lenders review loan eligibility based on various other factors such as:

Years of Employment

As compared to someone who frequently switches jobs, your chances of securing a loan increase if you can maintain a steady job for at least three years.

Employment Details Verification

Lenders will ascertain employer credentials and relevant employment details. They may request a number of documents such as offer letters, salary slips, bank statements, etc. before finalising the loan amount and interest rate they can offer.

Credit Score and Financial Habits

Arguably the most critical requirement, your credit score is a three-digit numeric summary of your credit history showcasing your money management and credit worth. It denotes your income-to-credit ratio, which is basically your credit card usage and whether you pay bills and loan EMIs on time. Most lenders accept a credit score of 750 and above. They extend higher loan amounts at favourable rates and terms to such individuals. 

Property Value and Loan-to-Value Ratio

Lenders cannot finance the entire cost of the property that you wish to purchase. They can only cover a significant portion of the price, usually up to 90% of its current valuation. Borrowers need to pay the rest as down payment. So, if your lender agrees to fund 75% of the house cost, you will be responsible for the remaining 25%. 

Ways to Boost Home Loan Eligibility

In the event that you find yourself unable to meet the qualifying standards of any lender, here are some smart tips to enhance your eligibility:

Repay Ongoing Loans

Applying for fresh credit whilst still repaying existing debts can hurt loan eligibility. Therefore, strive to close current loans before you avail of another one. It will not only leave you with adequate finances to service the loan comfortably but you can further improve your CIBIL score and eligibility for securing credit. 

Bring in a Co-Applicant

Lenders will take into account the combined income, credit scores and repayment records of both applicants when you apply for a joint home loan. This will boost loan eligibility and qualify you for higher loan amounts and enticing home loan interest rates.

Select a Longer Loan Tenor

A longer loan tenor raises eligibility and ensures timely pay-outs allowing you to repay the loan in smaller manageable instalments.     

Summing Up

Home loan eligibility helps facilitate a smoother home loan verification process with an accurate measure of the risks involved that can make or mar loan application prospects. Moreover, individuals know how much money they would be eligible to borrow, the probable home loan interest rates and other variables; aiding effective credit planning whilst strengthening their financial profile.

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