Once you have finalized upon you dream home, then is the turn how to make the dream home yours. Home loan financing (Home Loan) is the most common option. Even government provides many incentives on home loan which make it an attractive option. Knowing your loan eligibility is an important aspect. If you know how much you can borrow before applying for Loan, you can plan your finances well in advance. Loan Eligibility defines the maximum amount that can be borrowed from bank/Financial Institution. It depends on various factors like occupation (salary/Non salary), Sector/company where you are working, Income, Loan Tenure (maximum being 25 years), Age (maximum being 58 years)
- Factors affecting loan Eligibility
- How banks calculate your maximum EMI
- How banks calculate your loan amount
- Joint Loan
- How to increase your Loan eligibility
Factors affecting loan Eligibility
- Personal Profile: The personal profile of an individual is also important for loan amount. This includes factors like educational qualification, profession you are into, number of dependents, assets owned, liabilities owed, savings history, Insurance Policies etc. A higher number of dependants or existing liabilities implies lower repayment capacity. An Important factor.
- Credit History: These days credit history of the borrower also plays an important role. Credit history is nothing but your financial report card which banks consider while considering your any kind of loan. It takes into consideration you all outstanding payments to any institution. If you have any outstanding payment for credit card, personal loan etc it can make your credit history poor. Make sure you make your credit history clear before you apply for any kind of loan. With the advent of Credit Information Companies (CIBIL in India), the banks and financial institutions have now better managed to access to credit worthiness of a loan applicant. A very crucial and deciding Factor for loan. Please read credit history in our CREDIT HISTORY section.
- Age: It determines the earning years left for the individual.The age limit also affects the tenure of the home loan, and EMIs. An applicant's retirement age is also considered. For example, if the applicant is 45 years of age and is set to retire at 60 years, the maximum loan tenure available will be 15 years.
- Co-Applicant Age: In case a bank has a 75-year age limit (Upper Limit) for a co-applicant, if the applicant is 40 years old and the co-applicant is 60 years old, the home loan will be sanctioned for a maximum period of 15 years only.
- Property Attributes: Banks have specific norms with respect to the area of a flat. This may be built-up area or carpet area. The age of the property is also important in case of purchase of an preconstructed or preowned property. Banks conduct a legal and technical appraisal of the property to check whether the title is clear, if there are any ownership disputes, whether the property is free from encumbrances etc. In case there are any objections in this appraisal, the loan application is bound to be turned down.
How banks calculate your maximum EMI
- Banks follow a thumb rule that your total debt outflow (EMI, including all loans) should not be more than 50% of your take home salary. Explaination: Lets assume your monthly take home salary is Rs 45,000/-. The total EMI (Including all other loans) should not be more than Rs 22,500/-.
How banks calculate your loan amount
- Another thumb rule that Banks follows is that your total Loan Amount should be not be more than 48times of your take home salary. Explaination: Lets assume your monthly take home salary is Rs 45,000/-. The total loan amount that can be sanctioned to you will be approx Rs 21,50,000(i.e. 48 times of your monthly take home salary).
Note: If bank realizes that you are paying other loans as well, then bank sees to it that not more than 50% percent of your total monthly salary is paid only as EMIs. For Ex. You are already availing a car loan with EMI of Rs 5000/-. You apply for Home Loan (Assuming your monthly take home salary is Rs 45000/-) Here you are eligible for a loan amounting Rs 2150000/-, but Bank will sanction only Rs 1675000/- as they will assume that your total outlay in EMI should not be more than 50% of your take home salary. One easy way out here is that first you take a home loan then you take a car loan.
- While purchasing property, you can opt for a joint loan with your spouse. In case both husband and wife are working or have separate sources of income, they can go in for a joint loan. This way the loan amount also increases. Home loan eligibility can be enhanced by clubbing the income of your spouse with yours. This is one of the main reasons why one would want to opt for a joint Loan. Home Loan eligibility is calculated by clubbing your income with your spouse’s. All banks allow clubbing of the spouse's income to work out loan eligibility. In such cases, your spouse will act as a joint borrower (or co-borrower).
- However, banks are selective in extending this concept joint loans to other relations. Some banks allow parents and children to be joint borrowers, while a smaller number of banks allow brothers to be joint borrowers. The reason for the restrictions is that in the event of some dispute arising between the joint borrowers, the income stops getting shared and added which may result as a problem in paying the loan installments. Some banks makes it compulsory that the home should be registered in the name of co-borrower also.
Note: Marriage Certificate is the most important document if you are opting for joint home loan with your spouse, else it will be impossible for you to get the loan sanctioned.
TIPS: How to increase your Loan eligibility
- Take loan for maximum tenure possible: It is the best way possible to take maximum loan amount from a HFC(Housing finance company). These days HFC’s are giving loans for tenure for 25 years. Take it with a pinch of salt, Keep reading:
- Take a joint loan: Try to club income of your spouse to get more amount of loan. Explaination: If a individual applies for home loan and according to his eligibility his sanctioned amount is Rs 15 Lacs, whereas he needs loan for Rs 20 Lacs. If his spouse is working with almost same salary, then they will satisfy banks loan eligibility criteria and banks will be keenly interested happy to give loan to this couple.
Quick Tip: If planning to take a joint loan along with your spouse, please ensure that you have a MARRIAGE CERTIFICATE with you, else be assured that your application will be rejected.
- Any other loans: It happens that there are many people, already availing car loan, before they apply for a home loan. Prepay all the loans before applying for a home loan or disclose upfront in the Loan application form regarding the existing loans.
- Prepay all other loans: If you are already availing any personal or car loan please prepay the same before you apply for any other home loan. This will reduce the chances of your application rejection.
- Step up home loans: If you are young and with good educational qualification and experience, banks will be interested in giving you loan more than your eligibility. This is with an assumption that your income increases as your career grows.
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