Demand for home loans has increased by 25%-40% in select cities, according to reports. However, even with such a significant rise in demand, not every loan applicant is eligible for this credit. Usually, they need to go through a routine eligibility checking process laid by lenders.
The entire process requires thorough research and a complete understanding of the loan. Therefore, individuals should always check the home loan eligibility criteria before proceeding with the application.
What is home loan eligibility?
Home loan eligibility is simply the loan repayment assessment of an individual. Lending institutions consider several factors in assessing whether an individual can afford to repay the loan amount in a given tenor. The factors include age, CIBIL score, age, and employment, among others.
Based upon these factors, lenders determine the loan amount which an individual would be capable to repay. Following are the home loan eligibility criteria that most banks and financial institutions consider before lending a substantial amount to a borrower:
- Age limit – 20-60 years, depends on employment type
- CIBIL score – not less than 750
- Employment – self-employed or salaried professionals
- Minimum salary – Usually around Rs.25000 per month
- Nationality –Indian resident
- Salaried professionals work experience – 3 years minimum
- Business continuity for self-employed individuals – minimum 5 years
How to improve home loan eligibility?
Many a time, potential borrowers cannot take a home loan due to their inability to meet the eligibility. For such borrowers, along with knowing how to apply for home loan, they should also know different ways to improve home loan eligibility.
Here are a few smart ways to boost the eligibility and avail a high-value loan amount –
- Clear out all existing loans
A lender always takes into account the current dues of borrowers before approving the loan. Hence, before taking a home loan, one should clear and close all existing loans, collect NOC and get it updated on the CIBIL account.
- Opt for a longer repayment tenor
Home loan eligibility is determined by the repayment capacity of an individual every month, which is also known as home loan EMI.
If borrowers opt for a longer tenor, they will have to pay significantly low EMI. This will take off any excess burden.
However, a longer tenor would mean higher interest. To tackle higher interests, borrowers can increase the EMI amount every year as the income increases.
- Compare offers with different lenders
Housing loan interest rate, processing fees, and several other associated costs differ with lenders. Therefore, prospective borrowers must compare as many lenders as possible and compare the interest rates and other associated fees. This will help them in finding the best home loan deal with the lowest rates.
Also, different financial institutions offer pre-approved offers to existing customers. These pre-approved offers help borrowers streamline the loan application process. Existing customers can easily check their pre-approved offer by entering a few basic details online.
- Add a co-applicant
Applicants with a low income, credit score, or an overall inability to fulfil the home loan eligibility criteria have a higher chance of facing loan rejections. Such applicants can add a co-applicant, preferably an individual with a good credit score or a stable income.
This will boost approval chances and also increase the eligibility of the applicant.
- Add other income sources
Adding additional income sources can improve the chances of getting a higher loan amount, increasing financial stability. Hence, borrowers must add other income sources like rental yield, income from a part-time business, etc.
For a better understanding of entire eligibility parameters, individuals can also use online tools like a home loan eligibility calculator.
- Improve the CIBIL score
One of the primary factors that decide an individual’s eligibility is the credit or CIBIL score. The CIBIL score helps lenders differentiate between high-risk and low-risk borrowers.
A CIBIL score reflects one’s repayment capacity. Therefore, potential borrowers must always strive to maintain a strong credit score of 750 or more to impress the lender of their choice.
- Maintain a low FOIR
FOIR is the Fixed Obligation to Income Ratio, a crucial parameter determining one’s loan eligibility. It is defined as the part of a borrower’s income that is currently used to pay off existing debts.
Typically, the higher the FOIR, the lower the chance of loan approval. This is because; a lower FOIR reflects that one’s liabilities are less, which increases the eligibility. Therefore, potential home loan borrowers must try to keep their FOIR below 40% to increase their approval chances.
One of the many ways to decrease FOIR is paying off the debts as early as possible or increasing the income.
Along with the home loan eligibility criteria, potential borrowers must disclose correct information while filling out the application form. This will help them stay clear of any possible rejections.