Eligibility for a Home Loan

Eligibility for home loan

Every lender, whether it is a bank or a housing finance company, assesses the borrower’s home loan eligibility before sanctioning a home loan. This is crucial since home loans are high-value loans. Lenders typically provide finance of up to 75% on housing loans and the loaned amount can be anywhere between several lakhs to a few crores. Therefore, lenders need to ensure that the borrower has the adequate means to repay the loan and that the loan will be repaid on time, without any defaults or missed payments. Here are the factors that help lenders determine whether a borrower is eligible for the home loan.

Factors that determine your eligibility for a home loan

Lenders take several factors into consideration while sanctioning your home loan. The most prominent factors affecting your home loan eligibility are as under:

Your age: Your age is one of the most important factors considered by lenders while determining whether you are eligible for the loan. Ideally, lenders are more comfortable sanctioning loans to younger borrowers as they would generally have several years of employment (and a steady income) ahead of them. The idea is that the loan can be repaid while the borrower is still employed. Older borrowers are also eligible for the loan, but may be provided with shorter loan repayment tenures.

Your employment status: Your employment status also determines your eligibility for home loan. Lenders are happy to sanction loans for borrowers who are well-employed with reputed companies. They also require you to be employed (preferably with the same company) for a minimum period of 3 years to consider your loan application. If there are any gaps in your employment status or if you seem to be changing jobs frequently, there is a greater chance of your loan application being rejected.

Your credit repayment behaviour and your credit scores: When you apply for a home loan, the lender asks you to submit several documents. Of these, the most important one if your credit scores document. This document gives the lender an insight into your credit repayment behaviour; whether you have repaid previous loans on time, whether you are paying your credit card bills on time or if you have defaulted on repaying any loans or debts. This insight into your credit repayment behaviour, coupled with your credit scores helps them assess your house loan eligibility. You typically need a credit score of 750 out of 900 points to be eligible for the home loan.

Your income to expense ratio: Lenders also like to assess your income to expense ratio to check if you have the adequate income and the capacity to repay the loan in a timely manner. As such, they will evaluate how you spend your income. Lenders need to know if there are any other on-going loans that you are repaying. They also check how often you use your credit card and the credit limit you utilize each month. Ideally, you need to have a minimum of 60% of your income remaining, after your mandatory monthly expenses to be eligible for the loan.

Documents you need to submit

When you apply for the loan, lenders ask you to submit some necessary documents to assess your home loan eligibility criteria. They are as under:

• ID proof documents: An ID proof document is a government approved document which features your photograph on it, for example your PAN Card, Driver’s license, Passport, Voter’s ID or Aadhaar Card.
• Address proof documents: You need to submit photocopies of any document featuring your address such as Driver’s license, Passport, Voter’s ID, Aadhaar or utility bills.
• Income proof documents: Salaried employees must provide photocopies of their salary slips and bank statements of last 6 months, IT Returns of last 3 years, Form 16 etc. Self-employed/ business owners must provide their business proof documents, audited balance sheets and profit and loss statements and IT Returns of last 3 years.

Home loans are regarded as high-risk loans. This is why lenders check home loan eligibility criteria before they sanction the loan. Apart from fitting into the eligibility criteria, you must ensure that you have adequate sums to make the down payment and pay the fees associated with the loan.