Owning a house or an apartment is a lifetime dream for every Indian, no matter what social strata they are from or their financial situation. A home loan is one of the most sought-after financial instrument that helps in realizing this dream for millions of borrowers all over the country. However, unlike other forms of loans, a home needs careful planning and strategy as it is a long-term commitment, which can run up to 25-30 years. One needs to manage their budget well in order to repay back the loan amount with much ease. In fact, your home loan application status depends largely on your home loan eligibility amount.
What is Home Loan Eligibility?
Every borrower has to meet certain eligibility criteria for qualifying for a home loan. This is done to identify whether they can repay the loan amount back effortlessly without any defaulting. If you fail to adhere to the eligibility criteria, then it could result in rejection of the home loan application status thereby resulting in a bad credit history. Hence, a borrower must always complete the processing quickly and smoothly.
Home loan eligibility criteria are more or less the same across all banks and non-banking financial companies (NBFCs). However, a few institutions can lay down specific criteria depending on the services they are offering. Understanding what the eligibility criteria are to be eligible for a home loan makes the entire home loan application process easier and smoother.
You can use an online home loan interest calculator to check which banks would provide you a home loan. You can compare and choose the best home loans with the help of an eligibility calculator. The process is simple, and you just need to enter basic details.
Why the need to go for a home loan?
There are numerous benefits of opting for a home loan online apply –
Tax benefits – A borrower can benefit from tax benefits on the repayment of a loan on the principal amount and also on the repayment of interest.
Leading to value appreciation– A home loan eventually helps you secure the ownership of a house which is an asset that can yield the highest appreciation rates. You are not investing in something that is depreciating in value
Not a burden – Whenever you opt for a home loan, you are not paying any lump sum amount from your pocket except the down payment you would be making. You pay the lump sum in the form of EMIs which is spread over several months.
Pradhan Mantri Awas Yojana Benefits (PMAY) – Under the PMAY scheme, first-time homebuyers who wish to avail a loan are promised various benefits. If your eligibility is confirmed, then you can avail subsidy over the home loan interest rates and numerous other benefits.
How home loan eligibility is calculated?
If you want to clearly understand the eligibility requirements for securing a home loan, then the best thing you can do is use a home loan eligibility calculator. Various lending institutions in the country consider various factors such as loan repayment tenure, monthly salary and other sources of income, and other basic information to decide the eligibility for home loans.
With a home loan interest calculator, you can quickly set inputs or values into the fields to determine the eligibility for the loan without any hassle. This will help buyers to make an informed choice and avoid complex loan application rejections. This can otherwise impact the CIBIL score and credit behaviour negatively.
What are the factors that that affect home loan eligibility?
In this home loan guide, we explain the factors that play a crucial role in determining your home loan eligibility.
Age limit – This is the first and foremost factor that a financier or a lender would consider whenever one submits an application for a home loan with low interest rate. Usually, financial institutions try to limit the house loan term to the age of the applicant’s superannuation. This implies that young professionals can avail a loan with a term of up to 25 years without any issues. Older applicants beyond 40 find it difficult to be eligible for home loans for an extended tenure.
Income – Financial institutions usually provide home loans under two main categories: salaried and self-employed. Regardless of which category an applicant falls into, one must have a regular and steady source of income. This is because there are fewer risks associated with lending money to an individual who has a stable source of income.
Salaried individual: If you are working for any private registered company or any government department, then you fall under this category. Most banks prefer applicants who have completed at least a year in the present firm at the time of application. The lenders demand the applicants to submit pay slips, bank statements, form 16, and reference letters from employers for the purpose of verification. Proofs for the same are also requested from the guarantor and co-applicants as well if applicable.
Independent professionals: Dentists, management consultants, doctors, dentists, engineers, architects, chartered accountants, freelance workers, and others fall under this category. ITR papers and bank statements are requested from independent professionals for determining eligibility.
Self-employed – If you own a company or business or if you have other sources of income such as rented properties or if you hold any shares, then you fall under this category. If you have any tax-related papers or bank statements, then you can apply for a home loan under this category.
Loan term: If you opt for a longer tenure, your eligibility chances will improve. EMIs too will be manageable and lesser. But the downside to this is you will end up paying more interest.
Outstanding loan – Financial institutions recommend keeping the EMI to Income Ratio between 50 and 60 percent. This is to leave a window for future loans or to pay off existing loans if any. But unsettled loans could affect your eligibility in the future.
CIBIL Score Report – Banks also analyse your credit history by obtaining information from Credit Information Bureau India Limited (CIBIL), the country’s leading first credit information bureau. They keep detailed records of all the info pertaining to credit history relations between the lenders and you. Any negative entry could impact your eligibility in a significant manner.
Is Home loan eligibility based on age?
Borrowers can avail longer repayment tenure if they are of a lower age. Also, a home loan lowest interest rate will be offered by the bank if you have a higher income. Salaried applicants who are in the age group of 23-62 can easily apply for a home loan. Self-employed applicants can apply in the age bracket of 25-70 years for availing a home loan from financial institutions in India. The age limit can vary from one bank to another.
Tips to increase home loan eligibility
Purchasing a dream home is a crucial decision in any individual’s life. Most of the time, the budget of your dream home may shoot up. This is when you need to home loan online apply. Here are some important tips that will help you increase your chances of securing a home loan without any hassles.
1. Clear out all existing loans
Any existing pending loan can impact your home loan eligibility criteria negatively. Any lender would consider your outstanding dues before sanctioning your home loan. Before applying for a loan, make sure that you have cleared and closed all your existing loans and have them updated in your CIBIL credit score.
2. Extending your home loan tenure
Your home loan eligibility criteria are decided to depend on your ability to repay your loan amount every month which is popularly referred to as EMIs. If you opt for a longer tenure, then your EMIs would be lower. However, this also implies that you need to pay a higher interest rate to the lender. Increasing your EMI amount every year and maintaining a strict expenditure will help you clear your loan amount in a lesser period. Make good use of the EMI calculator to plan how you would repay off your loan amount.
3. Maintain your FOIR below 40 percent
FOIR refers to Fixed Obligation to Income Ratio. It is a critical parameter that helps you determine your loan eligibility. It is defined as the part of your income which you are using for repaying the loan amount. Higher is your FOIR, lower would be your chances of securing a loan. Hence, you need to try to limit your FOIR to less than 40 percent. By increasing your source of income or by clearing all your other existing debts, you can maintain your FOIR under the desired limit.
4. Opt for a joint home loan for improving your eligibility chances
A Home loan with low credit score and income are the common reasons for the rejection of loan applications by financial institutions. You can improve your chances of securing a loan by choosing a joint applicant who has a better credit history. You can have any immediate family member as a co-applicant. Having a woman co-applicant would be even better as you get to enjoy a lower rate.