Opting for a Housing Loan is one of the best ways to own a house. However, it is essential to know a few aspects before you opt for a Home Loan that suits your needs and budget. Additionally, it is important to know the eligibility criteria to secure a loan.
Banks take into consideration the following factors when approving your Home Loan. Here are some of the factors that can assist you in securing a loan. It must be noted that these eligibility criteria vary depending on the type of loan, lender and borrower (if you are a salaried employee or a self-employed person.)
Top 5 factors that determine Home Loan eligibility
1. You do not realise how vital your income is to you
The first criterion that lenders consider is income. A stable income from a reputed organisation is always beneficial for you, while job hopping might raise some questions. For self-employed applicants, banks look at business earnings and tax returns to determine the stability of income. This means that the more income there is, the higher the amount of money one is allowed to borrow.
2. Credit score – the Invisible deal breaker
A credit score demonstrates the way someone handles their credit obligations. A good credit score stands as an essential requirement. A credit score exceeding 750 benefits your application process yet scores below 750 might result in rejection or lead to elevated interest rates.
Some of the factors that can lead to a low score include failure to pay credit card bills on time, failure to pay loans on time, and frequently applying for loans. It is recommended that one check their credit score and improve it before applying for a loan.
3. How much loan do you ask for vs. property value
Banks do not fully fund the cost of a home. They cover between 75% and 90% of the property value, and the balance is paid in a cash down payment. It is also important not to apply for a Housing Loan amount that is beyond your capacity because the chances of getting the loan will be slim. It is easier when you select a property that you can afford in terms of the amount of money that you have.
4. Having existing debt can affect your ability to get a loan
Already paying off multiple loans? The Debt-to-Income (DTI) ratio is crucial to lenders because it shows the proportion of your income that is used to pay EMIs. If a significant portion of your income is channelled towards paying off previous debts, your ability to handle a new Housing Loan can be challenging. This is why other debts should be cleared before applying for a loan since doing so will enhance the chances of the loan being approved.
5. Tenure and interest rate impact Home Loan eligibility
The tenure of the loan also defines the EMIs and the Home Loan eligibility. Longer tenures imply that the EMIs are lower, and therefore, the approval is easier, but the total interest paid is higher. A lower tenure means that the total interest to be paid is less but the EMI amount is higher.
Conclusion
It is also important to understand that Home Loan is not limited to salary income only but other factors are also taken into consideration. This means that the credit score, the credit balance, and the amount of the Housing Loan applied for largely determines whether one will be approved for the loan or not. One must always be prepared, aware and selective in order to be closer to the dream of having a house.