Owning a house is one of the biggest but probably the toughest aspirations to accomplish today. Most of us take that leap towards buying our dream home at some point in our lives through a home loan. However, there are several factors that need to be taken into account before you begin that journey. Firstly, ensure that you are financially stable to take on the additional burden of a home loan. Also, before applying for a home loan, make sure that all your documentation is on point, so that your home loan application is accepted.
Your home loan application is the very first and most crucial step towards realizing your dream of owning your own home. Hence it is also important to understand how financial institutions evaluate your application and what criteria they base their judgment on. Here is a quick lowdown to help you understand the nuances banks look into.
Your credit history
Banks prefer lending money to an applicant who has good financial history and habits. If you have had a clean slate as far as your financial profile is concerned, it should not affect your credit history.The banks will check your history of EMIs to see if you have defaulted on any of your loan payments. If your credit score is around 800 it is considered excellent; anything between 700 and 800 is considered good. But if your credit score is below 300 it can jeopardize your chances of getting the loan application approved. A good credit score for home loan, however, will not help you with a better interest rate. It will help your loan get processed quicker.
One of the most important documents you need to submit to the bank, is related to the property or the house you are looking to purchase. The bank will examine all the paperwork provided by your builder and whether the project has all the necessary permits and clearances from the concerned authorities like the municipality and the government. So, ensure that the project is a viable one. Also, try and choose a project that is being constructed by a reputed builder so that the bank has little to doubt.
Additionally, documents related to your identity like your passport, voter identity card, PAN card, proof of your present address—all have to be in place before you begin the process of your loan application.
The bank needs to be assured that your job is adequately secure so that you are capable of repaying your loan without defaulting on the EMIs. Banks mostly prefer candidates holding government jobs as these are considered secure. Also, doctors, chartered accountants, lawyers etc. are considered secure professions by the banks. Given the uncertainty of the private sector, private sector employees are not rated very high. Also, the bank needs to be assured that you are a stable employee. If you have a habit of switching jobs frequently, it may work against you.
In order to approve your application, it is important for the bank to know about your history of debts and the present income to debt ratio. You must reveal all your present loans and EMIs to the bank for it to evaluate if the remaining debt can be paid through your present salary. Ideally, your income to debt ratio should not exceed 50%, as it might adversely affect your home loan application. So tread carefully before you take the decision of buying your new home.
Ideally, the banks prefer candidates who are aged in the range of 30-50, owing to the security of income people generally have within this age group. If you are aged above 60, it might be difficult to get your loan application approved.
Prior planning and taking all the necessary measures are crucial to secure a home loan. So be systematic and put your papers in place before applying for your home loan.