The decision to purchase a home is one that will change your life; it will not only affect your finances but also your family’s personal growth. In most cases, you would have to apply for a home loan to finance your decision to buy a house. It is important to know the aspects that affect your chances of getting your home loan approved because a variety of factors determine your eligibility for a loan.
What are the Ten Factors that Impact your Loan Eligibility?
- Age
Typically, lenders impose an age restriction on prospective borrowers. A long career and financial growth makes repayments simpler so they tend to favour lending to younger candidates. Conversely, people in their 50s or who are close to retiring would have fewer years of employment, which could make EMI payouts challenging. As a result, lenders are reluctant to offer loans to these borrowers.
- Income
An individual’s ability to repay debt is defined by their income, which serves as insurance against defaults that are likely to occur. Since a high salary makes it easier to pay off EMIs, lenders assess an applicant’s financial condition at the beginning of the application process.
- Credit Score
Lenders can fairly deduce your financial history from your credit ratings. It shows how you handle debt, if a home loan can be trusted with you, and how responsibly you can pay back the EMIs. A CIBIL score of 750 or higher is typically preferred as it indicates creditworthiness. However, a lower credit score suggests bad credit behaviour, which lowers loan eligibility.
- Employment Status
For loan approvals, salaried employees should ideally have two to three years of work experience in the current organisation. Having steady work and consistent income guarantees lenders on-time payments. Lenders evaluate the success of self-employed applicants’ businesses to establish eligibility. However, due to their erratic cash flow, they can be given higher interest rates than salaried applicants.
- Property Value and Profile
After an assessment of the property’s market value, lenders approve appropriate loan amounts. Your eligibility increases if the house’s features match the lender’s requirements. Housing loans often cover 75% to 90% of the real cost of a property, depending on eligibility.
- Loan Amount
Selecting the right loan amount in accordance with your criteria ensures simpler EMIs and faster approvals. Keep in mind that even if you qualify for a bigger amount, you should only take what you really need. EMI payments may be more difficult if the principal is greater. Missed or late payments can also hurt your credit score and ability to get credit in the future. You can use a home loan EMI calculator to get a rough idea about how much the EMI would be.
To see how much you are able to borrow, use a housing loan EMI calculator online. It takes the following inputs and is simple to use:
- Monthly income total
- Preferred period for payback
- The lender’s quoted interest rate for home loans
- Other EMIs
The data is instantly computed. It gives you a realistic picture of the expected loan amount and EMI amount.
- Loan Period
Housing loans have a maximum loan term of 30 years. However, you can only profit from this flexible tenure if your age at the time of loan maturity is considerably below the upper age restriction. For instance, if you are a salaried employee who is 58 years old, regardless of the maximum loan term the lender gives, you are only eligible for 4 additional years of credit by default (assuming the highest age restriction is 62 years).
- Present-day obligations
Lenders determine your ability to handle additional credit based on the quality of your current loans and credit card payments. Lenders could decline your request for a loan if you do not have enough money after repaying your monthly expenses. You should consider paying off your past loans and other outstanding debts in such a situation. In order to increase your eligibility for a loan, you may also provide any additional income, such as regular bonuses or rental income, along with the name of a co-borrower.
- Down payment
Only a specific percentage of your property’s value is funded by lenders. The borrower is required to make a down payment in order to cover the remaining balance. The principal amount to be sanctioned and the following loan interest are reduced by a sizeable down payment that is above and beyond the minimal criteria.
- Documentation
Supporting documentation is essential for processing loans. Your eligibility may suffer if your paperwork is incomplete. Each lender can have particular paperwork needs. Verify this list, and keep it on hand for quicker approvals.
Top Factors that Affect the CIBIL Score
- Irresponsible and irregular history of credit card repayment
- Multiple loan applications in a short period of time
- High credit utilisation ratio
- If credit history is short
- Paying only minimum due amount of cards
- Credit report error
If you want to purchase the home of your dreams, you could think about applying for a home loan that meets all of your needs. The viability of a house loan is determined by elements like low interest rates, flexible repayment alternatives, few paperwork, and prompt disbursal. You should carefully consider each aspect of your house loan before choosing it. Additionally, you should use an online housing loan eligibility calculator to calculate home loan eligibility before applying for a loan. This will help you decide whether or not to apply for a home loan from that particular lender.
