Financing the purchase of a new property using a home loan is the obvious choice for all financially prudent homeowners. From tax savings to a convenient apportioning of expenses, you can benefit from many advantages offered by home loans. Getting a home loan has become easier with the advent of digital platforms. You can find answers to all your home loan questions on the lending institution’s website. The online application process is easy to navigate and requires only a few minutes of your time. However, check the eligibility criteria set by the lending institution before applying for a home loan.
Read on to learn more about home loan eligibility.
Understanding home loan eligibility criteria
Home Loan Eligibility criteria can be explained as a set of minimum requirements that prospective borrowers have to meet to avail of a loan. The lending institution sets these criteria to minimise risk based on their past lending experiences. It helps them filter out the bad borrowers who have a high-risk profile. It acts as the first line of defence in their risk minimization framework. Some of the basic eligibility criteria are related to prospective borrowers’ age, income, and employment profile. For example, the minimum age criterion for home loans is that applicants must be over 21 years of age.
Factors that impact home loan eligibility
Here are some critical factors which affect home loan eligibility.
1. Credit profile
The first and most crucial factor determining home loan eligibility is your credit profile. Most lenders require a minimum credit score of 700 to consider a home loan application.
2. Property documents
Insufficient property documents can lead to outright rejection of home loan applications. Therefore, applicants must be mindful of the property documents required by the lending institution and submit those carefully. Some standard documents requested by home loan providers include registration, title deeds, building plans, valuation, approval from respective authorities, etc. These documents are essential to validate the property to be purchased and impact the loan amount.
3. Duration of the loan
The duration of your home loan plays a crucial role in determining your eligibility. It is always recommended to opt for a longer loan tenure to lower your EMIs. A lower EMI can improve your repayment capacity and help get your loan approved. For example, you might not be able to repay the borrowed amount through an EMI of INR 1,00,000. However, you might be able to repay the borrowed amount if the EMI is INR 50,000. Increasing the loan tenure will result in lower EMIs and ease the approval process.
4. Borrower’s age
There are a minimum and maximum age criteria set by most lending institutions for providing loans to borrowers. Usually, it is in the range of 21 to 60 years. In the case of home loans, both minimum and maximum age criteria are essential since the tenure is comparatively higher. Therefore, applicants must repay the loan amount before reaching the maximum age or have to choose a lower tenure to match the requirements. For example, if you are currently 50 years old, and the maximum age criteria set is 60, your loan tenure should not exceed ten years.
5. Income flow
How much money you make every month is an important criterion for eligibility. The total income and its flow play a key role in determining your repayment capacity as a borrower. A steady and consistent income source is needed to repay the EMIs on schedule. It is why income and employment are important factors for evaluating the eligibility of applicants. Since most salaried employees have a steady and consistent income source, the home loan approval process is more straightforward for them.
6. Down payment amount
Most home loans require the borrowers to pay between 10% to 25% of the property’s value as a down payment against the loan. Not being able to pay the minimum down payment set by the lender can lead to the rejection of your loan.
7. Market interest rate
The market interest rate can encourage or discourage borrowers from taking a home loan. A higher interest rate means that the cost of borrowing money will be higher. It will also increase the total outstanding balance, making the EMIs out of budget.
8. Existing Debts
It is advised to pay off existing debts and keep it to a minimum – less than 30% of your income in order to qualify for a home loan at the best terms.