Home loans provide homebuyers the much-needed financial help without which buying a home can become a massively difficult task. They are low-interest rate loans that come with a long tenor of up to 40 years and therefore, are easy to repay. Further, home loan tax benefits allow home loan borrowers to reduce their tax liability for a given financial year. Owing to these diverse factors, the demand for housing loans is high and if you want to be approved for a home loan, you must meet your lender’s home loan eligibility requirements.
What is Home Loan Eligibility?
Every lender judges a home loan application against a set of factors to understand the repayment capacity of the borrower and the risk involved for the lender in doing business with them. Home loan eligibility refers to the eligibility criteria that a loan applicant must meet to be considered eligible for a loan. Let us look at the factors that define home loan eligibility.
Factors that Impact Home Loan Eligibility
Here are the factors that affect home loan eligibility.
1. Credit Score: An individual’s credit score provides a very clear indication of their repayment capacity and creditworthiness. Credit scores are assigned by credit information agencies and can range from 300 to 900. A credit score between 750 and 900 indicates excellent creditworthiness and automatically leads to high home loan eligibility. A credit score between 700 and 750 leads to decent loan eligibility with low negotiating power. However, with a credit score below 650, getting approved for a home loan can become quite difficult.
2. Age: The age of the borrower is another factor that impacts one’s home loan eligibility. Young borrowers have more working years ahead of them and are therefore less likely to default on loan repayment. Young borrowers are also likely to witness more promotions and therefore, lenders also expect their repayment capacity to increase with time. Therefore, young borrowers have higher home loan eligibility than borrowers in their late 50s or early 60s. Individuals nearing retirement often find it difficult to get approved for a home loan and when they do get approved, the loan sanction is usually quite small.
3. Income: An individual’s income affects their repayment capacity. A stable income minimizes the chances of loan default and therefore, borrowers with a stable income get approved for a housing loan easily over someone who has a stable income or someone who switches jobs often. Individuals applying for a home loan are thus advised to not switch jobs often if they plan to apply shortly.
4. Debt-to-Income Ratio: Lastly, a home loan borrower’s eligibility is also impacted by their debt-to-income ratio. The debt-to-income ratio is the ratio of the portion of one’s total income going towards repayment of debt with respect to their total income. A high debt-to-income ratio indicates a high amount of debt and therefore, it is not surprising that borrowers with a high debt-to-income ratio have low home loan eligibility. On the other hand, a low debt-to-income ratio not only improves an individual’s home loan eligibility but also makes them eligible for better home loan terms and conditions.
5. Applicant’s Nationality: In India, most banks and NBFCs generally sanction loans only to Indian nationals. However, some lenders also sanction loans to foreign nationals. So, your nationality will also affect whether you will be approved by your preferred lender or not.
These are the factors that affect home loan eligibility. Now let us dive slightly deeper and look at the generic home loan eligibility criteria that most lenders look for.
Home Loan Eligibility Requirements
Most lenders require home loan borrowers to meet the following home loan eligibility criteria to be eligible for a home loan.
1. While age requirements vary from lender to lender, most lenders require borrowers to be between 23 and 70 years of age. Note that the maximum age for these loans is the age at the time of loan maturity and not at the time of applying for the loan.
2. The applicant must have a stable income and a credit score above 750.
Over and above this, not more than 40% of a borrower’s total income must be going towards repayment of debt and their income must be high enough to support the EMI repayment of their online home loan. Borrowers who wish to know the exact home loan amount they are eligible for can use a home loan eligibility calculator to work out the exact amount they must apply for. Further, applicants must also familiarize themselves with the home loan verification process to experience quick home loan approval and have high negotiating power with respect to the loan terms and conditions.