If you are planning to buy your dream house for instance, the first thing that crosses your mind is the amount of home loan that one is eligible for. It is important to establish how much home loan you qualify for since this informs the amount of money you can borrow and the type of property that you can afford to purchase.
The eligibility of home loan that you can avail depends on several factors such as income, existing liabilities, credit rating, the down payment you are capable of making, type and location of the property etc. Based on such factors, lenders decide the extent of loan they can offer you. As much as the conditions and the requirements set by all of the lenders may differ slightly, it is possible to point out a few criteria that may help determine the kind of home loan that may be available for you.
Debt to Income Ratio Among the most influential is your total debt to income ratio. This ratio shows the relationship of the outstanding debts that you currently have to your gross monthly salary. When it comes to endorsement of home loans, most of the lenders recommend a debt to income ratio below 43 percent. In simple terms, the sum of all your monthly obligations, including the potential home loan EMI, should not exceed 43 percent of your gross monthly salary. A low value of this ratio means that you can avail more home loan amount.
For example, if your monthly income is Rs1 lakh and your current debt obligations like loans and credit card bills equal Rs 30,000 per month, your debt to income ratio is 30%. In such a case, you can borrow a large amount as home loan. But if the monthly commitments themselves are for Rs 50,000 or so, then the amount available for a home loan EMI will be less. Therefore, having lower or fewer current debts assist in increasing home loan eligibility amount.
Credit Score Other factors that determine eligibility for a home loan include the existing credit score of the applicant. Lenders verify your CIBIL score or credit report to evaluate payment history and creditworthiness. If you have always been paying your loan EMIs and credit card bills on time, then your credit score is very good, usually over the 750 mark. People with good credit score are considered as credit worthy and they are a less risk to the lenders. Scores are generally average and may vary between 700 to 750. Any score below 650 means that lenders are not willing to lend because there are past records of payment delays or defaults. The credit score above 750 is preferred while availing of home loans as it ensures easy approval of higher home loan amount and attractive interest rate.
Down Payment Another important factor of home loan is the ability of the buyer to make a down payment towards the property. Lenders prefer higher down payments because the amount needed to finance is lower and this reduces the overall cost of the loan. Thus Rs 300 lakh down payment to avail a loan of Rs 700 lakh for a property worth Rs 1 crore seems more logical than Rs 10000 down payment. In addition to this, with higher equity contribution, you also get to enjoy cheaper interest rates besides being in a position to qualify for larger loans. If you can afford to pay as down payment 20 percent or more of the price it shows your serious intention to buy and you can easily get qualify for high value home loans.
Income Stability Employment stability and income have always been crucial factors considered by lenders before approving the home loans. Applicants who are self-employed are required to submit income tax returns and balance sheets of the last few years to prove consistent and sustainable income for the required loan amount. Salaried class applicants require submitting salary slip and bank statements showing monthly credit for availing home loan. Thus higher and steady income for reasonable time period is beneficial in getting quick home loan approval for higher amount.
Co applicant Income Co-applicant: This is one of the best ways to increase the amount of loan you are eligible to borrow for your home. With your spouse, parents or siblings earning stable income, applying for a loan means that you can all pool our income together and qualify for a bigger home loan. It becomes combined with you and depending on the overall earnings, lenders can fund more significant amounts. This helps to purchase of higher priced properties even if each buyer individually cannot meet the required loan basis single income. Co applicant must be a close relative ready to service the loan instalments in case of necessity.
Property Cost Another factor that determines the home loan amount approved is the cost of the property that you intend to buy. In this case, it may be seen that the more expensive the house, the higher the funding for the loan. If property prices are too high and loan amount sought crosses acceptable limits, you may be demanded high down payment. On the other hand, there is always the option to purchase a cheaper property that you can afford and that is acceptable by the loan lender. To get property that was approved for the loan, try buying homes in suburban areas or less populated cities because Urban city centres are very expensive for residential properties.
Choose Right Lender Each of the banks and housing finance companies have their own home loan sanctioning policies, loan to value ratio policies and KYC measures. While looking for home buyers loan, compare rates provided by different lenders in order to get the best rate. Interest rate, processing fees and most endearing of all loan amount offered depending on your profile. There could be some lenders who could be willing to offer a higher loan amount than others. Therefore, don’t rush to choose a home loan provider, instead, make sure you carry out a careful analysis of few banks, their offers, and amortization plans.
Enhance Eligibility Before Applying If you are not currently eligible for required home loan amount, improve the eligibility before applying for the loan. The above factors such as income, credit rating, outstanding debts, down payments etc are some of the factors that determine the loan amount that is approved. It is possible to work on enhancing all or any of these factors to expand the prospects of getting a home loan. For instance, pay off some of the remaining balance to clear liabilities, save for a higher down payment, or to maintain a steady income stream, etc Even these small actions help to increase your home loan eligible amount in the next few months.
Make use of Home Loan Eligibility Calculators In the present scenario, most of the lenders have online home loan eligibility check tools to make it convenient for the customers to determine the amount they are eligible to borrow. On the banking website, there are specific tabs for loan eligibility where you can input simple information regarding income, loan repayment, the price of the house etc and it immediately tells the home loan that you may be eligible for. This assists in shortlisting the suitable lenders within the shortest period. It can give a fairly good idea of what you may need to answer when you apply formally for a loan, although more questions may be asked.
In essence, home loan eligibility depends on several factors as highlighted below. Review the above parameters and criteria that lenders use in determining whether to approve loans or not. Improve your credit score where necessary in order to secure a larger loan. Analyse property prices in order to make right decisions on location and price range according to the loan amount. In this way, by knowing the most fundamental factors determining the home loan amount, one can most appropriately plan for the buying of his dream home.
