Are you the one who had applied for a home loan and your loan application was rejected by the bank making you worried about your eligibility? Then you are the one, who is missing some of the basic factors that banks consider while approving a loan. So, what are those factors and reasons that pull down your home loan eligibility? Let's explore few facts to keep in mind that can affect your eligibility while applying for a home loan .
Loan Tenure: It is very important for a borrower to always keep a balance between monthly EMI and loan Tenure. There is a misconception among the borrowers that minimum loan tenure will help them to close the loan tenure soon. The fact is, the longer the tenure the lower the EMI, and the shorter the tenure, the higher the EMI. The monthly EMI is always inversely proportional to loan tenure. The best way to avoid loan rejection is to check the eligibility requirements of lending banks carefully and apply only to that bank which matches your profile and budget. Keeping proper documents ready and providing accurate, verifiable details to the banks will ensure that you are eligible for the initial verification process. Always, calculate the available surplus and your finances before checking the loan tenure.
Applicant's Age:This is the major factor while applying for a home loan. If you think that you can take a joint home loan easily, then it's not that true always. Because the age of your co-applicant is also significant while taking a home loan. Suppose your age is 35 and your co-applicant's age is more than 55 years then the loan tenure will be measured mainly upon the age of the elder person among the borrowers. The loan tenure will get restricted from 10-15 years as well, depending among banks to banks. If you are applying for a single home loan, then eligibility depends on your age. At an early age, your eligibility is more depending on your credit score. "A Home Loan represents a big step in an individual's life and it's important to understand the various measures that banks, NBFCs and other financial institutions employ in determining the eligibility of an individual. At the forefront, your payment track record, which gets factored into your credit score, is one of the prime considerations when determining one's eligibility. Liabilities such as credit card dues and other existing loans, also significantly impact an individual's eligibility criteria. Additionally, a higher monthly outflow, a greater number of dependents and even an applicant's age could have an effect on the final home loan rate & amount sanctioned." says R. Vaithianathan, Managing Director - Tata Capital Housing Finance Ltd. Applicant's
Income: Home loan eligibility depends on your income as well. If you are a salaried employee, then banks will look ahead of your salary and age. Which means that the loan eligibility will be calculated on the basis of the income and the number of working years of the applicant. Lesser the age, more the eligibility of your home loan. Lender will always check your repayment capability, tenure of your job (It should be more than one year). Your profession plays a very important role while borrowing home loan because few banks avoid giving home loans to particular firms and profession (Depends on their job security).
Credit history: Lender will always check your credit report and applies for application of a loan, credit card, mortgage or any other type of credit. Lender will check all the information and will make the decision of lending the loan accordingly. Whether, it's your salary slip, balance sheet (for businessman), lenders will check all credit information mentioned there. Your ability to pay and willingness to pay the home loan depends on your credit report. Credit bureau will give the image of what kind of a borrower you are and this will help you in improving your home loan eligibility. If you are a defaulter, not done credit card payment timely or in the past you have failed to pay the amount to the lender, then your eligibility for home loan will be pulled down. So, it's very essential to maintain a good credit score. "While applying for a home loan, lenders normally check one's credit score and use the information, along with their own policies to determine loan eligibility. The 'Credit Score' is a crucial determinant in assessing a customer's borrowing behaviour. Creditors hence recommend that customers build a credit footprint that will let the banking system evaluate their creditworthiness, says- Mr. Mohan Jayaraman, Managing Director, Experian Credit Bureau, India. "It should also be kept in mind that a higher Loan to Value ratio (LTV) will severely impact an individual's Debt to Income ratio (DIR), which could increase the pressure on the borrower. The ratio may vary, but a general thumb-rule is to consider 60% of the net take home monthly income and then 60 times this amount to calculate overall home loan eligibility. Such yardsticks are adopted by financial institutions and borrowers should be cautious about such instances which could lower their credit score, and consequently, their eligibility." says R. Vaithianathan Home loan rejection/approval depends on your financial track record.
Key points to improve your home loan eligibility:
- Always check the rate of interest before applying for a home loan. Don't get confused by fixed rate or floating rate of interest.
- It is important that you know the difference between fixed rate home loan and floating rate home loan.
- Close unused credit accounts if you no longer require them. Lenders can take into account the credit limits available to you, not just what you currently owe.
- Study the terms and conditions carefully related to all documents.
- Submit all your financial documents correct.
- Check the down payment requirement according to your budget and which fits you well. -You can take a joint home loan with your spouse, parents or siblings.
- NSC, provident fund, LIC policies etc as a security and helps you in taking a home loan. -Ask about all the documents that are required by the bank and fill them within the given time frame It takes lot of efforts to build your dream house. So, start following the rules and build your dream home today.