Everything you need to know about home loan eligibility

New Delhi : Most people dream of owning their own home. And with the rising cost of property in India, the dream may seem distant to many. But to the relief of homebuyers, there is Home Loan. It is a convenient and quick way to fund the purchase of a house, flat or a plot of land to construct a house. The loan extends support even when you are remodelling, expanding, or renovating your existing abode. While the benefits are plenty, availing a home loan isn’t as easy as it seems to be. You need to be eligible for it. To assess home loan eligibility, lenders consider a number of factors, which we will discuss in this post and also the ways to make your profile more creditworthy.

Factors that Determine Home Loan Eligibility Criteria

Home loan eligibility criteria vary from one lender to another. It also differs as per the home loan scheme. Lenders determine home loan eligibility through a number of factors. Some of these factors are listed below:

1. Current Age of the Loan Applicant

Most lenders cap the maximum home loan tenure at 30 years or the age of retirement of a loan applicant, whichever comes earlier. This implies that a younger loan applicant has more chances of availing longer home loan repayment period than an older loan applicant. This is because the younger loan applicant has longer working years than the once nearing his/her retirement age. Therefore, younger customers enjoy better loan terms as compared to older customers.

2. Financial Stability of the Loan Applicant 

Home loans involve a huge sum of money. To ensure the money is repaid fully and timely, lenders assess the loan applicant’s financial stability. It is on the basis of your financial status, the lender will determine the home loan amount. Total income, employment/business stability and the quality of income are some of the factors that lenders consider to assess the financial status of a home loan applicant. 

3. Credit Score and Credit History 

Your credit score and credit history reflects your creditworthiness. A credit history that includes late payments, too many hard enquiries or defaults puts a negative impression on a lender. Such loan applicants are considered risky. They either do not get a loan or get it at high interest rate. A clean credit history adds credibility to your home loan application. Good credit history and credit score show that the loan applicant manages their finances responsibly. Hence, the chances of them defaulting on the loan will be less.

4. Current Financial Liabilities 

Before sanctioning a home loan, lenders will also evaluate your on-going financial liabilities such as personal loan, credit card payments, etc. to determine your loan repayment capacity. If you are currently liable for loan repayment, lenders will assess the outstanding amount, payment regularity, etc. to ensure you would be able to bear the burden of an additional loan.

5. Personal Profile of the Loan Applicant

Your personal profile also plays an important role in getting your home loan. When applying for a home loan, you provide personal information such as name, address, educational qualifications, etc. Lenders assess all this information to further eliminate any risks pertaining to home loan default.

6. Details of the Desired Property 

Your lender may have a few specifications which the desired property must adhere to. To ensure the property complies with the criteria, lenders evaluate the property on the basis of its market value, age, location, size, title, sanction plan, etc. Banks usually avoid funding properties that are more than 20-25 years old. Also, if the house or building is not constructed as per the approved plan or is deemed or proved unsalable due to any reason, then the lender has the right to decline your home loan application.

Ways to Enhance Your Home Loan Eligibility

Home loan eligibility primarily depends on your loan repayment capacity. If you want to increase your home loan eligibility, here are a few ways to achieve it:

• Add a co-applicant to your home loan application

If you are not eligible for a home loan due to insufficient income or credit score, you can add an earning close family member with good credit history as a co-applicant to the loan.

• Prepay the existing loans and other short-term debts

If you have debt under your name, pay it off as soon as possible. Not clearing off your outstanding dues before applying for a home loan may get you a higher interest rate and lower loan amount.

• Improve your credit score

Your credit score reflects how responsibly you can handle debt. A good credit score may also lead to better loan terms and rates. Therefore, higher the score, the better it is. If your credit score is low, you can improve by making bill payments on time, reducing credit utilization ratio, avoiding hard enquiries as much as possible, etc.

• Add another source of income

If you are not getting the desired home loan amount, adding another source of income can help. An additional source of income such as income through part-time business, income through renting an asset or object like a property or equipment will improve your financial health; hence, giving you an advantage of securing a higher loan amount. 

• Consider Step-up Loan Home Loans

Step-up Loan is yet another option that you can consider to avail the desired loan amount. This financial product allows you to take a home loan of a higher amount as compared to your loan eligibility under regular home loans. It is a great option for young salaried professionals who have less income initially. Under this type of loan, in the initial years of loan repayment, you pay moderate EMIs, gradually increasing in the subsequent years on the basis of your income.

To help customers check their home loan eligibility, Paisabazaar offers its Home Loan Eligibility Calculator and Home Loan EMI Calculator. Both online tools will give you an indication of your home loan eligibility and home loan EMI amount. The online tools are easy to use and are free of cost. Once you are able to determine the loan amount, loan EMI and loan tenure, you can proceed to apply for a home loan with your chosen lender.