Beat the home loan stress

How to increase your eligibility and get higher sanctions.

Those looking for a bank loan to fund their new homes are daunted by rising interest rates and a cap on the funding they can avail from banks. As a customer, you will need to cough up more money towards funding your buy, unless you improve your home loan eligibility or qualify for higher sanctions.

Almost all major banks increased their interest rates by 25 to 50 basis points in the past fortnight. Higher interest rates not only result in expensive home loans, but also lower loan amounts for borrowers. According to most banks, a person’s equated monthly installment (EMI) for a loan should not exceed 50 per cent of his salary.

 

For instance, at a salary of Rs 90,000 a month, typically an individual’s maximum EMI would be Rs 45,000 for a 20-year loan at nine per cent interest rate. His total loan amount would be around Rs 50 lakh. An increase of 50 basis points in interest rates (9.5 per cent) lowers his sanctioned amount by around Rs 2 lakh.

Last month, the Reserve Bank of India (RBI) restricted the loan-to-value (LTV) ratio that banks can offer customers. So, borrowers can get a maximum of 80 per cent loan of the property value.

Bagging higher sanctions
Housing Finance Companies (HFCs): The RBI’s new rules do not apply to these companies, as they are governed by the National Housing Bank’s regulation, which has not yet set any cap on LTV. Some of the HFCs include HDFC, LIC Housing finance, Dewan Housing and GIC Housing Finance Ltd.

“Some of the HFCs we deal with are still sanctioning loan amounts up to 85-90 per cent of the property value, depending on the profile of the borrower,” said Vinod Prajapati, director, Money Point, a direct selling agent.

Loan on amenities: If you are eligible for higher sanctions but constrained by the bank’s 80 per cent cap, you could opt for additional loans on amenities. Some lenders give this loan over and above that sanctioned for the house.

Property buyers sign an amenities agreement with either the developer or the seller, in case of resale apartments, for furniture, special flooring and other amenities inside the house.
 

Lender	For Rs20 lakh	EMI*	For Rs50 lakh	EMI*	For Rs75  lakh	EMI*
LIC HF Fix o Floaty*	8.90	893	8.90	893	8.90	893
HDFC Floating	9.50	932	9.50	932	9.75	949
ICICI BANK  Floating	9.50	932	9.50	932	9.75	949
SBI Home Loan  Schemes #	8.00	836	8.00	836	8.00	836
*(per lakh)    ** LIC HF Fix-O-Floaty offers 8.9% fixed for upto 31st Mar ’12, thereafter the then prevailing floating rate will be applicable. #SBI Easy Home Loan offers 8% fixed for the 1st yr, 9% fixed for 2nd & 3rd yrs, from 4th yr, for fixed loan, 3.5% above base rate. For loans up to Rs50 lakhs for floating interest rate 1.75% above base rate, for loans above Rs50 lakhs - floating intere Source: Apnapaisa Research Bureau

“Amenities loan could be a maximum of 5-10 per cent of the property value. However, this agreement needs to be registered by paying a stamp duty, just like the housing loan,” said a loan-sanctioning officer at a private bank.

Amenities loans also have a LTV cap, so if the amenities are worth Rs 2 lakh, the lender will only sanction a maximum of Rs 1.6 lakh only.

Increasing eligibility
Joint loans: Applying for a joint loan with a spouse, whose income can be clubbed with yours, will increase your home loan eligibility.

Most banks do not allow joint loan applications with relatives (parents) other than a spouse. “In such cases, the borrower needs to show regular income as well as assets belonging to the relatives,” said an official of a housing finance company.

Step up home loans: Allow yourself to increase your loan eligibility, if you are able to handle higher EMI commitments in the years to come.

“Lenders take into account your future earnings potential while calculating your eligibility. EMIs increase after every three-five years by when, the individual’s salary is also expected to increase,” says S Govindan, general manager – personal banking, Union Bank of India. 

Investments: Lenders take life insurance policies, national saving certificates and other long-term investments as collateral to give a higher loan amount. The borrower needs to lien these products in the name of the bank.

Even a good saving habit can help. It is one of the parameters that banks assign weightage to while assessing a loan application. Other parameters include income, number of dependents, job profile and so on.

Existing property: Income from existing property can also help to increase your loan eligibility. You can take a loan against an existing property, though few banks will club the two loans (a fresh home loan and a loan against property) to allow a uniform EMI. So, you could have two separate loans running alongside.