Due to the rising property prices, especially in tier 1 and tier 2 cities, saving for a new home is not practical. For individuals looking to purchase a new home, a home loan becomes the need of the hour. In addition to helping meet financial goals, a home loan has several other benefits, which include tax benefits of up to Rs. 1.5 lakh.
The important question then is, how do individuals who need financial support get loans at the right time? Most banks and lending institutions check your eligibility before authorizing a loan. Factors like how much they can lend and the term of the loan all depend on the eligibility criteria that the institution has established. So, if you are thinking that your loan application will be scrutinized based on your salary alone, you may be partially right. Here is everything you need to know about home loan eligibility criteria.
Home Loan Eligibility
Home loan eligibility hangs on two major factors.
1. Income Loan Eligibility: The maximum loan amount based on your income.
2. Property Loan Eligibility: The maximum loan amount based on the property cost.
Note: The lower of both these factors will be the home loan eligibility.
Now that we have understood the two major factors affecting your home eligibility, let’s get into more details about the two eligibility factors.
Income Loan Eligibility Criteria
Income loan eligibility primarily depends on four factors.
· Net Monthly Income: Most banks offer home loans to salaried and self-employed professionals (business owners). In either of the two cases, the borrower needs to have a regular and stable income that is above the minimum income limit set by the lending institution.
· Age: For an applicant to be eligible for a home loan, they must fall under the minimum and maximum age set by the institution. The minimum age for most lenders is 21 years, while the maximum age is 65 at maturity. For example, if you are 55 years of age, you will be eligible for a ten-year loan, i.e. till you attain the age of 65.
· Credit Score: The bank or lending institution will check your credit score while evaluating your eligibility. Your credit score is a three-digit number that scores you based on your credit history. In case you have outstanding debt or bad debt, chances are that your score will be considerably lower than the acceptable 700+. It’s important to maintain a good credit score to get access to lower interest credit.
· Debt-to-income ratio: Another important factor to keep in mind is your debt-to-income ratio. Your debt-to-income ratio is the cumulative debt to your total income. A lower ratio indicates a lower propensity to take on additional debt (which the lenders like). It also translates to better repayment history and a lower risk of non-payment. Generally, a ratio between 40-50% is acceptable.
Housing Loan Eligibility Calculator
One way to skip through the eligibility hurdles is to use a home loan eligibility calculator. Most loan eligibility calculators are pretty accurate and are easy to use for most individuals. The calculator requires users to enter key information like monthly income, interest rates and tenors. If you are still struggling to use the housing loan EMI calculator, here is an easy step-by-step guide on how to use a calculator.
Step 1: Enter your total monthly income (include co-applicants income to enhance loan amount eligibility)
Step 2: Enter the applicable interest rate being offered by the bank or lending institution.
Step 3: Enter the tenor of the home loan. Remember, the longer the tenor, the lower you can expect your EMIs to be.
Note: The process may differ from one lender to another. However, the steps mentioned above are uniform among most lending institutions.
Once you complete the three steps, your home loan eligibility will be specified. You will also receive crucial information about your home loan, like the amount that you can avail and the EMI payable.
How to Improve Home Loan Eligibility?
If you think you’re not getting a good deal, or facing outright rejections on your home loan applications, here are a few points that you can review to help improve your eligibility.
· Add a co-applicant who can enhance your combined net monthly income.
· Opt for a structured repayment plan.
· Ensure a steady flow of income, regular and periodic savings and investments.
· Provide details of an individual’s additional income sources.
· Keep track of and maintain all variable salary components.
· Take necessary steps to fix errors (if any) on your credit score.
· Regularly repay existing loans and clear any high-interest credit like credit cards and personal loans.
You can improve your chances of securing a home loan by following the steps mentioned above. Lending institutions have their eligibility criteria, which they rely on to see which individual is more likely to repay the loan amount. You can use the housing loan eligibility calculator to see if you can pay the monthly EMI amount, and other aspects involved in taking a home loan.