Home loans are a long-term commitment. They also involve a substantial amount, often leading up to EMIs that take up a significant portion of one’s total monthly income. Instances of missed EMI payments directly impact an individual’s credit score and their ability to access credit in the future. Consequently, borrowers are advised to borrow carefully and after taking into consideration one’s income and repayment capacity.
Lenders too ensure that they are lending loans to those borrowers who can comfortably afford the home loan EMIs without defaulting. The idea of home loan eligibility helps lenders correctly assess a loan applicant’s repayment capacity and consequently, whether or not they should be extended a home loan.
When someone applies for a home loan, lenders assess the application against a set of home loan criteria or home loan requirements. Individuals who meet the set qualifying criteria are considered low-risk borrowers and are extended a home loan. Individuals who do not meet the home loan eligibility requirements simply find their applications getting rejected. Next, we delve deeper into the factors that affect home loan eligibility.
Factors that Affect Home Loan Eligibility
Here are some of the key factors that will affect your home loan eligibility and ability to avail of a housing loan on the most lucrative loan terms and conditions.
Financial Stability
One of the key things that lenders assess to calculate your repayment capacity is your financial stability. Individuals with a stable job and income may not default on loan repayment. Therefore, such individuals may not find it challenging to get approved for a home loan in India. On the contrary, people involved in seasonal professions or businesses are known to throw individuals into a volley of ups and downs and people who change jobs frequently often find it difficult to get approved for a loan.
Credit Rating
Credit information agencies are institutions that study the credit behaviour of credit users and assign credit scores to them based on the information collected. Your credit rating will be crucial in helping your lender establish your home loan amount eligibility. A solid credit score in the range of 750 to 900 will help quell any doubts your lender may have about loan repayment power. On the contrary, a low credit score might make it challenging for you to get approved for a loan with a good lender.
Current Debt-to-Income Ratio
Lenders will also assess your current debt-to-income ratio. In other words, they will carefully analyze what percentage of your current monthly income are you devoting to the repayment of debt. A high debt-to-income ratio indicates that a significant portion of your income is already going towards debt repayment. Therefore, you may find it challenging to dedicate any further portion of your income to covering EMIs. Ideally, lenders prefer to lend to borrowers whose debt-to-income ratio is below 40%.
Quality of the Pledged Collateral
Home loans are a type of secured offering. The property that you buy with the loan money serves as collateral or security on your housing loan. High-quality collaterals or properties with high resale value lower the risk for lenders. Thus, all lenders keenly assess the quality of the pledged collateral while calculating an individual’s home loan eligibility.
Current Liability Through Other Loans
One of the easy ways to increase home loan eligibility is to add a loan guarantor. This will assure lenders about loan repayment and in turn will make loan approval easier.
Final Words
Understanding home loan eligibility is a crucial part of the home loan application process. If your home loan eligibility is low and you doubt your chances of home loan approval, here are some simple things you can do to enhance your eligibility:
- Consider adding a co-borrower or loan guarantor to enhance the chances of loan approval.
- Do not switch jobs often if you are planning to make a home loan application over the next few months.
- You can also increase your home loan amount eligibility by adding additional sources of income to your loan application. Consider adding rental income, income from interest, etc., if you are seeking a higher loan amount.
- Keep checking your credit score and if it is below satisfactory, start taking corrective measures immediately.
