Friday, 16 June 2017

Factors affecting your Home Loan eligibility | What factors affect home loans?

“My income is Rs. Xxx/-. What is my home loan eligibility?"

This is one question that we frequently hear from the customers when we first meet them. Deciding the home loan eligibility is not so easy and neither it is so simple. This is because there are a lot of other factors which are taken into account while arriving at home loan eligibility. The reason behind this is that no two individuals with the same income have exactly the same repayment capacity.

For example, suppose Mr. A and Mr. B both have a monthly income of Rs.25,000/- each. But Mr. A has an ongoing personal loan whose EMI is Rs.2,000/-. So would both of them have same home loan eligibility? The answer is obviously NO.

So then let's see what all are the factors that impact home loan eligibility of a borrower-

1. Income - Monthly income is definitely the most important factor that impacts home loan eligibility. Other things remaining equal, higher the income higher will be his eligibility

2. Current Obligations - Current obligations of a borrower also have an impact on his home loan eligibility. We have already discussed this in the example of Mr. A and Mr. B mentioned above. Other things remaining equal, higher the monthly obligations lower will be the eligibility. However, if any loan has less than 12 EMIs left, then EMI of that loan may be ignored.

3. Age - Age is also an important factor taken into consideration while arriving at home loan eligibility of a borrower. Suppose, Mr. X has a monthly income of Rs.50,000/- which is the same as that of Mr. Y. However, Mr. X is just 25 years old, whereas Mr. Y is 55 years old. In this case, Mr. X will be eligible for a higher loan amount as compared to Mr. Y. This is due to the fact that Mr. X will retire after 35 years, whereas Mr. Y will retire after 5 years (Assuming the retirement age to be 60 years for both). So banks would be willing to offer a higher loan amount to Mr. X as compared to Mr. Y as Mr. Y won't be having his current income after 5 years whereas Mr. X will continue to earn for 35 more years.

4. The Income of the co-applicant - Housing Finance companies these days insist on having a co-applicant to the loan. However, they do consider the income of co-applicant is certain cases while arriving at loan eligibility. For instance, the income of the wife can be clubbed with the income of her husband thereby increasing his eligibility. Hence, if co-applicant is an earning member of the family, then it can help increase the loan eligibility of the main applicant

5. Valuation of the property - Valuation of the property to be purchased is also taken into consideration while deciding home loan eligibility. Banks give anywhere between 75% to 90% of the cost of the property depending on the loan amount. The loan amount cannot exceed these limits under any circumstances, even if the borrower is eligible for a higher amount based on his income.

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