Finance

What is Home Loan Eligibility? Complete Guide for Beginners

Summary – It is important to consider the eligibility criteria before applying for a home loan. This article outlines the general parameters and goes in-depth regarding the 3 main ones.

Buying your dream home is a great achievement in every individual’s life. But it is certainly not easy to have all the funds needed to finance it. In such instances, a home loan is the perfect solution. However, with that comes debt, making it important to ensure that a home loan does not stress out your financial health. 

Many potential borrowers are uncertain about how much home loan they are eligible for. There are a few home loan eligibility criteria. These are as follows:

  • Age is a significant factor as the maximum loan tenure is usually capped at 30 years. The age limit for both salaried and self-employed individuals is between 21 years to 65 years.
  • Other liabilities such as car, home, or personal loans are considered to assess your debt-to-income ratio. Ensure that these are paid off or kept at a minimum before applying for a home loan. 
  • Past and present credit history is taken into account to see past repayment records.
  • Salaried people must have a minimum salary of Rs.25,000 p.m.(INR 20,000 for residents of non-metro locations). 
  • Self-employed borrowers must have a minimum business income of Rs.2 lac p.a.
  • The applicant’s future income potential plays a major role in their eligibility.
  • Minimum CIBIL score of 700 with no history of defaults

When you are applying for a home loan, you must consider some of these parameters more in-depth than others, such as affordability, documentation, and credit score. These aspects will be discussed below in depth. 

Documentation 

Before you apply for a home loan, it is important to understand and know all the necessary documents. Ensure all the required documents are available before you approach a lender. Doing this can expedite the process and make the sanction period shorter. The following is a list of documents that you should keep handy:

  • Income Tax Returns 
  • PAN Card (the lender will carry out a PAN card Verification to ensure it is authentic)
  • Aadhar Card (the bank will need your Aadhaar card to verify your identity)
  • Ensure you maintain a good balance in the income and expenses bank account over the past 6 months
  • Salary slips of the last 3 months if you are a salaried person.
  • Duly filled application form. 
  • Passport-size photographs Duly signed.
  • Form 16 for the last 2-3 years (make sure all taxes are filed)
  • Bank Statements for the past 6-12 months (from a bank account where your income is credited, and expenses are deducted)

Having the above mentioned documents is a must and it is required to ensure a smooth loan taking process. 

Credit Score

A stellar credit score is a foundation for an easy home loan application process. Your credit score is dependent on how consistent you are according to your record for paying out EMIs and credit card dues. The credit information report (CIR), which consists of your credit score, represents your credit history of the previous borrowing from different financial institutions, banks, NBFCs (Non-Banking Financial Company), or Housing Finance Companies (HFCs). 

A trusted credit bureau must maintain your credit scores and record. This information is then shared with the banks or lenders when they enquire. It is only predictable that the higher the credit score, the higher are your chances of the loan application getting approved. 

A good credit score can also sway the interest rate in your favour as it shows a high repayment capacity. Make sure you check your credit score at least once in six months, and best-case scenario, 12 months before applying for a home loan.

Affordability 

Affordability plays a crucial role when applying for a loan. It is largely dependent on the interest rate and monthly EMI payments. To get an estimation and fair idea of what your interest rate may look like, you can use the home loan interest rate calculator. It is a great tool to help you determine what kind of a loan you can and can not afford. It also helps you narrow down the search for a lender. 

The first step is to define your budget for buying a home. During this process, you must consider: 

  • How much money you can set aside for the down payment
  • Much of a home loan would you require
  • How many years you are willing to undertake the loan
  • The EMI range you are comfortable with

In most cases, you can get 80% of the property’s value as the home loan amount if your income is sufficient. In the event that your income is not sufficient, you can add your family member as a co-borrower. Considering these points before searching for a lender helps you determine the nature of your loan. 

Take into consideration all the eligibility points before applying for a home loan to ensure a speedy sanction. Narrowing down on one or two lenders is also important to ensure there is no negative impact on your credit score. Commit to a lender with competitive interest rates and flexible repayment tenures!

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