Factors That Influence Home Loan Eligibility

Want a home of your own but lack of funds is making you postpone it time and again? Well, with the current home loan interest rates being their all-time low, apply for a home loan as soon as you can. However, know that for your home loan application to be accepted, you must prove your eligibility. Banks or lending institutions analyse the home loan applicant’s eligibility based on some important factors. In this article, we discuss the topic of home loan eligibility in detail.

Home Loan Eligibility Calculator

The home loan eligibility calculator is a tool you can use to calculate the home loan eligibility of an applicant taking into consideration factors, such as their monthly income, current age, credit score, other debts and loans, credit history, age of retirement, etc.

Factors Influencing Home Loan Eligibility

Several factors influence the home loan eligibility of an applicant. Here are a few important ones:

1. Age of the Applicant –

   Applying for a home loan at the beginning of your career or decades before retirement, gives the banks and financial institutions the confidence of smooth loan payback. Salaried people who have many years of job left before then often get a quick sanction as the banks know they will have the funds to repay the loan. You can use the home loan eligibility calculator to know the tentative loan amount that you would qualify for at your age.

2. Good CIBIL or Credit Score–

   A good CIBIL score (750 and above) can boost your chances of meeting the home loan eligibility criteria. Timely and regular payment of credit card dues and monthly instalments or EMIs shed light on your seriousness in settling any debt. A good credit score also makes the borrower trustworthy in the eyes of the banks and lenders. Banks check your credit score to determine your creditworthiness and a good CIBIL score can fetch you low home loan interests as well.

3. Debt Obligations–

   The debt-to-income ratio is an important factor that lending institutions look into while evaluating the home loan eligibility of an applicant. A FOIR (Fixed Obligation to Income Ratio) below 40% is considered good. Banks calculate FOIR based on the monthly income, instalments on any current loans, as well as the potential EMIs of the prospective loan. Lower FOIR or money spent on living expenses gives the lenders the confidence that you will have the funds to repay the loan EMIs.

4. Financial Dependents –

   Your ability to qualify for a home loan is also influenced by the number of dependents you have. Even if all other criteria are met, having a large number of financial dependents, lowers your chances of receiving a house loan. On the contrary, if your wage is sufficient to support you and your family while simultaneously shouldering the additional obligation of housing loan payments, then the loan is sanctioned smoothly.

5. Income of Borrower –

   If you are a working professional and are planning to apply for a home loan, then you will have to be continuously working in an organization for the last two years or more as it reflects positively on your home loan eligibility criteria. Salaried employees usually have a better chance of availing of home loans at lower interest rates due to their higher-income certainty. Frequent job changes are not good for a home loan as banks fear repayment issues. Thus, a stable job for the last couple of years enhances your home loan eligibility.

6. Academic Qualification and Professional Experience –

   Academic qualification is another important factor that affects your home loan eligibility. Good and impressive academic and professional records tend to work in your favour and help in faster sanctioning of the home loan. Job stability also increases your eligibility for a home loan along with your qualification and experience. As these two factors show your financial stability and repayment capacity, they add to your chances of a quick and low-interest home loan.

7. Existing Debt Obligation –

   Your home loan eligibility criteria are also affected if you already have availed of several loans which are currently running. The probability of the bank approving your home loan is less in such cases. Banks use this factor to determine if you are regularly taking debt or if you are a careful borrower who pays off his debt timely. The home loan eligibility calculator tool can help you see if you avail yourself of more loans with the current running debts and how would it affect your financial situation with the fixed income you have.

8. Down Payment –

   While applying for a home loan, the borrower should be able to make at least 20% of the total loan amount as a down payment. The down payment amount majorly impacts your eligibility for a house loan. A greater down payment increases your credibility and gives lenders more faith in your payment capacity. 

9. Property Value –

   Sometimes, lenders appoint someone to visit the property and examine its location, building specifications, and market value to decide the eligibility criteria and the loan amount they would offer for the property. Per RBI’s guidelines, the maximum amount a lender can offer as a loan is only up to 90% of the property’s value while the rest must be given as down payment.

Summing Up

Home loan interest rates today are attractive enough for borrowers and there is always the option of home loan balance transfer if you are looking for yet lower interest rates on home loans. But what about lenders? Can they give loans to all and sundry? No, lenders evaluate home loan applications per the current standards and sanction the loan applications only when they see the applicant is eligible for a home loan. So, before you apply, prepare yourself well – keeping the above points in mind will certainly help.

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