A Home Loan is a credit facility provided by banks and NBFCs to individuals wanting to buy a house or land, build a house on their plot, or for home renovation and maintenance needs.
Applicants can obtain a house loan for up to 85% of the project cost, which will be repaid in EMIs over payback terms of up to 30 years. Current interest rates start at 6.90% and can go as high as 12% depending on your eligibility.
Since house loans are available for large sums and have extended payback terms, banks have tight eligibility standards for sanctioning a home loan. Lenders consider a number of factors when assessing the status of your housing loan application.
The bank will evaluate whether you are salaried or self-employed, your salary, present loans, and your credit score while processing a home loan. Lenders place a high value on credit scores when evaluating home loan applications since they indicate your ability to repay the loan. In some cases, your credit score might determine whether the bank offers you a higher or lower interest rate, or even accepts or rejects your loan application.
Read More: Tips For Getting A Home Loan
So Here Are The Top 6 Factors That Affect Your Home Loan Eligibility
The most essential criteria in determining whether or not your home loan will be authorized are your credit score and credit report. The RBI has authorized four credit rating firms, often known as credit bureaus, to issue credit reports and ratings. In partnership with banks, credit card companies, and other structured lenders, they compile and manage records of all credit-related transactions. The bureaus receive monthly information on all of your credit transactions from these lenders. This contains details about your EMI and credit card payments (including any late or missing payments), balance due, any changes to your overall credit limit, and any other pertinent information.
The credit score is a measurement of your previous and present credit behaviour that prospective lenders might use to determine your creditworthiness. A credit score of 700 and above is seen as favourable to approve your home loan. Your credit score is likely to be high if you have a strong track record of making all of your payments on time and in full. If you have a history of skipping payments or overusing credit, it can hurt your credit score.
Another thing to keep in mind is the average salary. Since there is no collateral, the banks want to know that you have a decent income from your job and other sources that will allow you to make your monthly payments. The greater your salary, the more likely it is that you will be approved for a home loan.
Employment Type and Employer
Someone who has a history of changing jobs frequently may be ineligible for a home loan because he or she may not have a steady or predictable income during the loan term and may be unable to make regular payments. It's a good idea to work for at least a year before applying for a home loan.
Your employment is also considered throughout the loan approval procedure. Because house loan borrowers must pay a large monthly EMI, lenders must guarantee that you will have a stable monthly income for the duration of the loan, allowing you to make timely payments. That is why they are worried about your job position. They'll consider whether you've had consistent employment and if you've stayed in the same spot for an extended period of time.
Additional Read: 6 Smart Tips To Get Low Interest Home Loans
Age & Type Of Property You Are Purchasing
Banks do not waste time in approving house loans for properties created by real estate players with whom they have a partnership. However, this does not preclude you from having a property of your choice. However, if the home is not brand new, there is a potential that the lender will do an independent appraisal and then lend you a portion of the purchase price. This is to account for the possibility of a structural collapse in the near future. So, choose a property that is not too old to avoid such a hiccup during the application process.
Your Credit History
If you believe that your home loan application will go smoothly since you have no credit history, you will be disappointed because your loan application is likely to be rejected owing to this aspect. If you don't have a credit history, your lender will have no reference point to use when analyzing your credit conduct.
As a result, even if you are confident that you will not have any problems when repaying your home loan, your bank/lender will not take your word for it and will put an end to your goal of owning a home. So, before you apply for a home loan, make sure you have at least a few years of good credit history.
Banks often look for borrowers who will be able to repay the loan satisfactorily before the age of 60, which is the average retirement age for any individual. As a result, if you are young, banks and NBFCs are more likely to grant you a home loan. In general, they prefer that you have at least 10-15 years of experience before retiring. Age is an important factor in determining the period of the loan, as well as your eligibility amount.
A home loan is one of the most significant financial obligations you will make in your life. A single blunder can result in financial distress. So, shop around, evaluate home loans from different lenders, look at all your options, and make your purchase after thorough planning and consideration.