If you are planning to apply for a home loan, it is only natural that you would want to avail of the maximum loan amount possible, especially now when home loans have become more affordable than ever and property prices are at an all-time low. This is the right time to accomplish one's dream of becoming a homeowner or investing in the real estate market. However, though you would try your best to avail of the highest loan amount possible, it is up to the lender to decide the loan amount you qualify for. So, how do lenders decide the loan amount to be sanctioned for a home loan borrower?
All lenders have set home loan eligibility criteria or requirements. These requirements help lenders decide the loan amount a borrower qualifies for based on various factors, such as age, income, job stability, CIBIL score, etc. It is always recommended to use a home loan eligibility calculator to determine your eligible home loan amount. The good news is that with basic knowledge of factors that affect Home Loan eligibility, borrowers can enhance their eligibility as well as avail of the lowest home loan interest rates. So, let us look at the factors that affect a borrower's Home Loan eligibility.
Factors Affects Eligibility and Tips to Enhance Your Eligibility for a Home Loan
Credit Score
An individual's credit score is a three-digit number ranging between 300 and 900. The higher one's credit score is to 900, the higher the borrower's repayment capacity and creditworthiness and the better are their chances of availing of a loan on favourable terms and conditions, including the lowest Home Loan interest rates.
Tip 1:
If you wish to avail of a home loan on beneficial terms and conditions, make sure your credit score is at least 750 or above. Fetch your credit report six months in advance. This will give you ample time to take corrective measures in case your credit score does not meet your lender's home loan eligibility criteria.
Income and Employment Status
Lenders want to minimize the risk of loan default. They, therefore, ask borrowers for their income documents, such as salary slips, ITR, bank account statements, and profit and loss statements (in the case of self-employed individuals). So, before beginning the loan application process, go to your lender's website and see their minimum income requirements for the city you reside in.
Tip 2:
If you think your income isn't enough to support your home loan application, you can enhance your eligibility by adding a co-applicant to your home loan application. Add someone who earns well and has an impeccable credit rating. When you do so, your lender will calculate the loan amount you are eligible for after taking into account the combined income of both the co-applicants. If you do not have a co-applicant, try adding your additional sources of income and see if you meet your lender's home loan eligibility criteria.
Age
Age is another key factor that determines home loan eligibility. People nearing retirement age often find it difficult to avail of favourable loan terms and deals. This is because people nearing retirement have only a few working years ahead of them and thus, lenders perceive that with decreasing income, seniors may find it difficult to repay a loan. Most lenders require borrowers to fall within the age bracket of 23 and 70 to be eligible for a home loan.
Tip 3:
If you are nearing retirement, it would be advisable to have your working children be the primary applicant. Talk to your lender and see if adding them as co-applicants will also work.
Existing Debt Obligations
Your debt-to-income ratio or fixed obligation-to-income ratio also impacts whether or not you meet your lender's home loan eligibility criteria. If you already have too many loans running at the same time and you are paying several different credit card bills as well, you will most certainly find it difficult to take responsibility for another loan. Lenders don't take any risk and reject home loan applications when they see that an individual's debt burden is already too high.
Tip 4: How to apply for a home loan with a high debt burden? If you really want to avail of a home loan but your existing obligations are keeping you from becoming eligible for one, try clearing a few loans. Ideally, your obligation-to-income ratio should be under 40%.
Final Words
If you wish to avail of a housing loan, make sure to meet your lender's home loan eligibility criteria to ensure easy and quick approval. However, if you fall short on certain pointers, use the information provided in this article to navigate the home loan approval process easily.