Mr. Journo
Home Finance Factors That Determine Your Eligibility for a Home Loan

Factors That Determine Your Eligibility for a Home Loan

by John Murphy - 11 May 2022, Wednesday 284 Views Like (0)
Factors That Determine Your Eligibility for a Home Loan

According to a recent report, housing sales have increased by 113% y-o-y as of Q3 2021. One can attribute this growth to the increasing demand for private living spaces among middle-class aspirants. Furthermore, the RBI has kept the repo rate unchanged at 4%, making housing affordable.

More and more borrowers are considering home loans as a financial option due to their high-value loan quantum. However, it is imperative to know about home loan eligibility criteria and the factors affecting them to decrease the possibility of rejection. 

What are the factors that affect your home loan eligibility criteria? 

A borrower must meet lender-specific parameters to successfully avail a home loan. However, these parameters may vary with lenders. Underlined below are several factors that affect the loan amount one can borrow: 

  1. Credit score 

One may ask, 'what is CIBIL score and how is it important while availing a home loan?' The CIBIL or credit score determines the individual's capacity to repay the existing debts, credit card payments, etc. This three-digit score is used to assess an applicant's creditworthiness and financial credibility. Hence, it is essential to understand that the credit score determines one’s home loan EMIs. 

Moreover, lending institutions recommend that individuals maintain a CIBIL score of 750 or above. 

Potential borrowers must practice making timely payments and clearing any outstanding dues. If unable to do so, this may hamper an applicant's eligibility to avail a loan. In addition, applicants can opt for a home loan balance transfer to save money on their EMI. 

  1. Income 

A borrower's income stability is one of the crucial home loan eligibility criteria. This will determine a borrower's capability to repay the loan within the stipulated tenor. Besides, applicants can show their fixed deposit returns, rental and investment as an additional source of income. Hence, borrowers must have a stable income and a high CIBIL score for a home loan.

However, lenders might reject the application if the EMI amount exceeds 60% of one's income. 

  1. Employment status 

The home loan eligibility criteria vary for a self-employed and salaried individual. The lenders assess an applicant's professional stability by the number of times they have switched jobs before sanctioning a loan. 

Besides, lenders prefer self-employed individuals with businesses over 5 years and a stable income source. 

  1. Age 

Lenders consider the borrower's age before approving a home loan. It is because a home loan may take up several years to be repaid. For instance, a young salaried individual would repay the outstanding amount within the home loan tenor due to the years of employment left. 

  1. Condition of the property 

The property's condition, market and resale value are assessed before sanctioning a home loan. Properties situated in a prime location with basic amenities have a better chance of securing a higher loan amount. Lenders also scrutinise the age of the property.

  1. Debt to income ratio 

Debt to Income Ratio is taken into account by lenders as this determines whether borrowers will be able to avail a loan without it affecting their financial obligations. Furthermore, if the DTI is above 40%, then the chances of sanctioning the loan are reduced. 

Hence, applicants can choose to prepay the existing loan amount to increase their chances of loan approval. They can calculate the amount of loan that they can pay through the home loan part-prepayment calculator. 

Documentation required for home loan eligibility 

One needs to keep the following documents handy while applying for a home loan: 

  • KYC- A voter ID card, PAN card, Aadhaar card and driving licence. 
  • Income-related documents- Bank statements from the previous six months, salary slips of the last two months, and IT return slips from the previous three months. 
  • Business documents- Borrowers must be able to show their business documents. These include registration certification, partnership agreement. 
  • Property documents- It is vital to have the registration certificate of the property. 

Additionally, to streamline the process of availing a home loan, lenders extend pre-approved offers. These offers shorten the application process and save time. Such offers are available on financial products like home loans, loans against property etc. Prospective customers can submit their essential contact details to check their pre-approved offers online. 

Borrowers must remember the factors that can affect their home loan eligibility criteria. This will help reduce the chances of rejection. However, one must move ahead with the application procedure after thorough consideration.