Decrypting your home loan eligibility

Harshil Mehta

Home is where the heart is. Though owning a home may mean different things to different individuals, one thing is common —we all want to own a home. Given the expense involved, most people prefer to avail a home loan to finance this dream, which is one of the most important decisions and undertakings in his life. Applying for a home loan can often seem like a complex process but one must be aware about some of its key aspects. Some important factors to be considered while applying for a home loan are as follows:

Income

This is the most important factor with a strong bearing on home loan eligibility. If the applicant is a salaried employee, then banks and financial institutions will consider his salary and age. This basically means that the loan eligibility will be evaluated on the basis of his income and the number of years the individual has worked.

Lenders also reconfirm the individual’s repayment capability and the tenure of his job. One can also club his spouse’s income to enhance his home loan eligibility and can apply for a joint home loan.

Age factor

While applying for a home loan, banks and financial institution check the age of the borrower as this assesses the number of years the applicant would work. It is often believed that a joint home loan is easily available, but this is not the case always. Age of the co-applicant is also vital while applying for a home loan. For example, Brinda Roy, 29 years old takes a home loan with the co-applicant being her mother who is 60+, then the loan tenure will be calculated mainly on the basis of the age of the older person. The tenure of the loan will be restricted from 10-15 years depending on the bank or financial institution. If Brinda was individually applying for a home loan then her eligibility would depend more on her individual credit score than her age.

Debt

If an individual is applying for a home loan with other outstanding loans such as a car loan or personal loan it may affect his home loan eligibility. If one already has an existing home loan with over 12 unpaid instalments, banks and financial institutions generally take this into account while calculating the borrower’s eligibility. In such a situation, it is important to prepay full or half of their existing outstanding loans to improve their eligibility and ensure that their new application for the home loan remains unaffected.

Credit score

To qualify for a home loan, a good credit score is very important which usually ranges from 400 to 900. Banks and financial institutions prefer to lend to borrowers with credit score higher than 750 since it reflects stronger credit worthiness. This gives a clear picture about the applicant’s credit history, past payment behaviour and makes way for attractive interest rates for the borrower.

Before applying for a home loan, it is most critical to check eligibility criterion. It is also very important for the applicant to know the amount they are eligible for and at what interest rate, which will help you to optimise chances of loan approval. Additionally, improving one’s loan eligibility will also have positive impacts on one’s personal financial planning and help move towards better financial security in life.

The writer is CEO, DHFL. The views expressed in this article are his own