You Must be Aware of the factors which determine your home loan eligibility

According to a report, the housing loan sector in India grew 10% y-o-y as of May 2021. This growth can be attributed to the demand for homes among the middle classes. 

Moreover, RBI’s decision to keep the repo rate at 4% has made the said credit form affordable. The loan variant extends substantial financial backup to individuals interested in purchasing a property. 

These data suggest a plausible time for intending home buyers to avail the said credit. In this regard, knowing the home loan eligibility criteria would streamline the process further. For instance, knowing the factors that influence the eligibility parameters and improvement techniques would eliminate the chances of loan application rejection.

What are the factors that influence home loan eligibility?

Here are some of the essential factors that determine an applicant’s loan eligibility.

  • CIBIL score

CIBIL score and credit history are the two essential home loan eligibility parameters that lenders assess before approving the loan application. These factors substantiate an applicant’s creditworthiness and eliminate the suspicion of defaulting.

Therefore, the lending institutions prefer individuals maintaining a 750+ CIBIL score and a remarkable repayment history. Potential borrowers must practice healthy financial habits like timely repayments, clearing outstanding dues, part-prepayments, and a balanced borrowing structure.

Borrowers with a good CIBIL score are eligible to receive customised benefits and reasonable terms. They also receive the negotiation power to avail lower interest rates which leads to affordable home loan EMI.

  • Income stability

Income stability is a vital point under the home loan eligibility criteria. Lenders scrutinise an applicant’s income structure to assess the loan eligibility. Individuals with a regular income source can easily convince the lenders of their repayment capability. Typically, the loan request remains unapproved if the loan EMI exceeds 60% of an individual’s monthly income.

However, one can show additional income or surplus gained through various income sources. This can include investment, rental properties, fixed deposits returns, etc. Submitting papers proving a stable financial backup would help in loan approval. Moreover, it can work as home loan documents during instant fund requirements.

  • Age

The lending institutions also consider the age factor as a vital eligibility criterion. This factor again substantiates an applicant’s ability to repay. For instance, a retired personal would have an irregular income structure, leading to the insecurity of repayment. This can lead to loan application rejection. In comparison, a young borrower would potentially repay the outstanding balance within the tenor due to the current employment.

The age criterion under home loan eligibility criteria for salaried is 23 to 62 years, and self-employed is 25 to 70 years. Therefore, a smart solution can be availing a small loan amount and long loan tenor to improve the loan approval chances. 

  • Debt to income ratio

Lenders use factors like DTI or Debt to income ratio to understand borrowers’ capacity to repay a loan. If a DTI ratio is above 40%, the chances of loan approval reduce. Individuals can follow techniques like prepaying existing loans or displaying additional income sources to improve the housing loan eligibility. It also allows them to negotiate for a lower home loan interest rate.

Alongside, they should also submit the documents required for home loan to increase the eligibility. 

  • Employment status

The employment status is different from salaried to self-employed individuals. They scrutinise the number of times an individual has switched jobs before applying for a loan. Frequent job switches denote income instability and reduce the home loan eligibility. 

These are the certain factors that influence an applicant’s home loan eligibility. Moreover, individuals can also opt for a joint home loan. This would help in easy loan approval and avail additional home loan tax benefits.

Moreover, selected HFCs also extend pre-approved offers that make the loan application swift and hassle-free. These offers are usually available on credits like LAP, home loans, etc. Check your pre-approved offer by entering your name and number.

Therefore, potential borrowers must keep a tab on the updated list of home loan eligibility criteria of a preferred lending institution. This would help them make an informed borrowing decision. However, if confusion prevails, they can use a home loan eligibility calculator and determine the areas to work upon.

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