Friday, 11 August 2017

Factors that impact our home loan eligibility

Home loan is the easiest way to buy a home. Prior to clearing your loan, banks and NBFC are considered as a complete set of home loan eligibility criteria. Let us look at the factors affecting your home loan eligibility.

Age

The younger you are the more secure banks and NBFC feels to grant you a loan. Usually they need you to have at least 10-15 years on your side, before your retirement approaches. Age will also play an important role while deciding the tenure of a loan and it will directly co-relate to your eligibility amount. For example, if your monthly income is 40,000; your loan eligibility for a 20 year tenure based on 10.50% ROI could be 18,00,000. Now if you have just 15 years left for retirement, this tenure will come down to 12-15 years, and based on the same ROI and income your eligibility will now be 14,60,000 for a period of 12 years.



Income

An applicant’s income, is the starting point for determining his home loan eligibility. Generally, lenders consider 40% to 50% of your monthly income as available towards servicing the loan. The proportion of income considered for servicing the loan increases, as the income level rises. So, for a person in a higher income slab, the lender may even consider a higher percentage of his monthly income.
However, the percentage that is considered for servicing the home loan, may vary from lender to lender. Moreover, the criteria adopted for salaried persons, is different from that for self-employed borrowers. For self-employed professionals, like doctors, some lenders consider the gross receipts and not the taxable income, for the purpose of home loan eligibility.

Any existing loan

Once your eligibility is determined based on your income, further scrutiny of your bank statements and savings account will reveal your monthly expenses and any other outflow towards any loans or other regular outflows. Usually expenses and other loan payments or outflows should not be over 55-60% of your monthly income. If this is higher, your loan eligibility will go down.

Number of Dependants

Bank and NBFC will also assess the number of Dependants you have. This is because people Dependant on you, like your retired parents, spouse, children etc. will mean some sort of outflow from your earnings toward them. They will consider it while deciding your home loan eligibility. You may however prove that they have their own investments and earn interest income from that, as a result your financial burden is reduced. For this the banks may demand to see the investment instrument for verification.

Credit score

Before approving your home loan, lenders assess your credit behavior from your credit history or CIBIL score to check your reliability as a borrower. Your CIBIL score should be greater than 750 (out of 900) for good home loan eligibility. If you’ve got outstanding credit or pre-existing loans, or have defaulted on credit before, your credit score will be poor and your application might get rejected.

Borrowing Capacity

There an old adage that goes…‘To get a loan you need to prove you do not need it in the first place…’This is true to an extent as the first thing the bank checks is not whether you need a loan, but whether you can repay it regularly over a long period of time. This is judged by your monthly income. The first step is your monthly net salary and your tentative eligibility will be based on this. They usually consider a loan for which EMI would not exceed 40-45% of monthly income. However, mere salary may not be the only factor as they may even consider regular bonuses, incentives etc. or any other source of income you may have which has been stable over a period of time, and raise your loan amount.


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