A home loan is an important credit option offered by financial institutions to those individuals looking to purchase a plot or home, build a home on a plot or for maintenance and home renovation requirements. Applicants can consider opting for a home loan of as high as 85 per cent of the buying cost, which must be repaid in the form of EMI over a span of thirty years. As a home loan is a secured loan option, home loan interest rates all banks offers are usually low. For instance, HDFC home loan interest rate starts from 8.50 per cent per annum, State Bank of India home loan interest rate begins from 8.85 per cent per annum, Punjab National Bank home loan interest rate starts from as low as 8.75 per cent, etc.
As home loans come with huge loan proceeds and tend to extend up to the repayment tenure, lenders have stringent eligibility criteria for offering home loans. Lenders consider various parameters when evaluating your home loan application status. They assess whether you are self-employed or salaried, existing loans, income and your credit profile and a score while processing the home loan deal. Lenders place a high value on your score and profile when assessing your application for a home loan as they show your potential to repay the home loan on time. In a few scenarios, your score may decide whether the financial institution would provide you with a higher or lower rate of interest or approve or turn down your loan application.
So, what are the top six parameters that impact your eligibility for a home loan –
Credit score –
The crucial parameter in deciding your home loan eligibility is your credit report and score. The Reserve Bank of India has authorised four important credit rating firms called credit bureaus to issue the ratings and reports. In partnership with credit card companies, banks and other lenders, they compile as well as manage records of all credit-linked transactions. The credit bureaus get monthly info on all credit transactions from such lenders. This contains info regarding credit card payments and EMI, the balance outstanding, any changes to your thorough credit card limit and any other crucial details.
Also Check: HDFC Home Loan Interest Rate
The score is nothing but a measurement of your past and existing credit behaviour that the prospective lenders may use for deciding your credibility. A score of 750 and above is looked upon as favourable for home loan approval. Your score is most likely to be on the higher end if you hold a strong repayment record of making your repayments timely and in full. If you hold a credit record of skipping the repayments or using more than the suggested credit utilisation limit, it can impact your score adversely.
The next crucial thing you must note is the average income. As there’s zero collateral because a home that you are opting for itself is collateral, lenders consider checking your income and other sources to understand your repayment potential. The higher your income, the more likely you would get approval for a home loan.
Employer and employment type –
Someone with a history of switching jobs constantly might not qualify for a home loan as he/she might not hold a predictable or steady income during loan tenure and might be unable to make constant repayments. It is a prudent idea to work for nearly a year before placing an application for a home loan.
Your employment even is factored in throughout the credit approval process. As home loan borrowers are required to pay a huge monthly loan EMI, lenders ensure before providing the loan proceeds that you hold a stable income for a loan duration permitting you to make repayments on time. That’s why they fret regarding your employment position. They factor in whether you have had consistent employment and if you have remained in a similar designation spot over a time period.
Age and type of property you are buying –
Lenders do not waste time when approving your home loan for properties formed by the real estate players with whom they are in partnership. However, it does not preclude you from holding a property of your preference. However, in the case the home is not a new one, there’s a potential that the lender would do an independent appraisal and then ensure to lend the portion of the buying cost. This is performed to account for the structural collapse possibility in the upcoming times. So, select a property that’s not very old to avoid such mismatches during the loan application procedure.
Your past credit record –
If you want your home loan application to go on smoothly as you have zero credit past record, you would be disappointed as your loan application most probably may be turned down due to this reason. If you do not hold a credit record, your lender would have zero reference points when reviewing your credit. As an outcome, even though you know you would not have any issues when making home loan repayments, lenders do not buy this. So, before placing an application for a home loan, ensure you have nearly a few years of excellent credit past record.
Your age –
Lenders usually look for borrowers who can make repayment of the loan satisfactorily before sixty years of age, which is the average retirement age of any individual. So, if you are a young individual, lenders are more likely to offer you a home loan. Generally, they prefer that you hold at least ten to fifteen years of retiring experience. Age is a crucial parameter in deciding the loan period and your eligibility amount.
A home loan is often the most important financial obligation you would have in your life. Any missed blunder can lead to financial stress. So, ensure to shop around, assess your home loans from distinct lenders, look at distinct options and then make your buys after considerable consideration and planning.