When planning to take a home loan, know about home loan eligibility to find out whether you qualify for a certain loan amount as per a set of criteria standardised by the lending institution. This makes the entire process of availing a house loan smooth and quick.
What is Home Loan Eligibility?
Home loan eligibility criteria are the guidelines that you must fulfil to apply for a home loan scheme. Failing to meet the eligibility criteria leads to loan rejection and a negative mark on your credit report. To avoid unnecessary hard enquiries and ensure loan approval, you must check home loan eligibility before applying for the loan.
|Home Loan Eligibility Criteria|
|Nationality||Indian Residents, Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs)|
|Credit Score||550 – 900|
|Age Limit||Minimum – 18 years|
Maximum – 70 years
|Total Work Experience||At least 2 years of work experience is required|
|Business Continuity||At least 3 years of business continuity is required|
|Minimum Salary||At least Rs. 25,000 per month, may vary across lenders|
|Loan-to-Value (LTV) Ratio||Up to 90% of property value|
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Home loan eligibility criteria vary from one lender to another. However, a common set of housing loan criteria is given below:
- Any salaried or self-employed individual can apply for a home loan
- All Indian Residents are eligible to avail a home loan. Non-Resident Indian (NRIs) and Persons of Indian Origin (PIO) under certain home loan schemes are eligible to avail a home loan
- Applicants with a good credit score or CIBIL score have a higher chance of getting home loan approval than the applicants with poor credit score
- The Fixed Obligation to Income Ratio (FOIR) is the proportion of the income and the existing fixed financial obligations such as credit card bills and loan EMIs. This ratio should be below 40-50% mark (after considering the proposed loan’s EMI and other on-going debt payments)
- Age is also factored while assessing a home loan application. The minimum age to apply for a home loan is 18 years and the maximum age to apply for a home loan is 70 years. Lenders prefer giving home loan (with tenure of up to 30 years) to younger loan applicants as they have more work-life years compared to someone in their 40s or 50s
- Regular income ensures timely loan payments. Therefore, an applicant with regular income also has a higher chance of loan approval than an applicant with a seasonal source of income
- Net monthly income should be equal to or more than Rs. 25,000 to be eligible for a home loan
- Lenders also consider the location and age of the property. They may reject the loan application if the residual age of property is less or the property does not fall within the defined geographical limits
- Employment status and stability also help in getting home loan approval. Lenders prefer giving out loans to working individuals with at least 2 years of work experience. In case of a business, it should be running for at least 3 years
- For salaried professionals, about 40% of monthly gross income can be considered as monthly EMI against the loan
- For self-employed individuals, profit earned determines the eligibility for the home loan
What is Home Loan Eligibility Calculator?
House loan eligibility calculator is an online tool that gives an estimate of the loan amount that can be availed. Before applying for a home loan, knowing the amount you are eligible for helps in increasing the chance of loan approval. The calculator provides results instantly on the basis of the income and repayment capacity, which is assessed using details like fixed monthly obligations, age, etc. However, before approving a loan request, lending institutions consider many other factors, such as credit score, financial position, etc.
How to Calculate Home Loan Eligibility
Home loan eligibility is calculated on the basis of certain factors, including net monthly income, loan tenure, existing obligations, applicable home loan interest rate, etc. The easiest way to calculate home loan eligibility is by using the home loan eligibility calculator. It is easy-to-use and gives accurate results instantly.
How Home Loan Eligibility Calculator Works
The home loan eligibility calculator works on a mathematical formula that evaluates the eligible loan amount on the basis of a few set parameters. These factors include gross monthly income, loan tenor, existing monthly obligations, etc. On providing the relevant details, the calculator gives results instantly.
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What Factors Determine Home Loan Eligibility?
- Credit Score/CIBIL Score: Credit score is the reflection of your creditworthiness and is a major factor in deciding home loan eligibility. A credit score above 550 and close to 900 is considered good for home loan eligibility. It increases the chance of loan approval. It also improves the chances of getting loans at better terms and rates. A credit score below 550 or close to 300 is considered poor. This score might lead to loan rejection or make you pay higher interest rates.
- Applicant’s Age: The minimum age to apply for a home loan is 18 years and the maximum age at the time of loan maturity should be 70 years. Home loans usually stretch up to 30 years; therefore, many lenders cap the age of retirement as the maximum age limit. A younger loan applicant can opt for longer loan tenure. This is because younger loan applicants have longer working years than the ones nearing their retirement age.
- Employment/Business Stability: For many lenders, salaried individuals should have at least two years of total working experience in order to be eligible for a home loan. In case of self-employed individuals, the business should run for at least 3 years.
- Debt-to-Income Ratio: To be eligible for a home loan, the percentage of current financial liabilities with respect to the income should not cross the 50% mark. This is so because a higher debt-to-income ratio would mean that a major proportion of the salary or income is going into paying off existing debts, thus increasing the risk of defaulting in future. Therefore, if the debt-to-income ratio is more than the mark, then lenders might not approve the loan.
- Property Details: Lenders also assess the age and location of the property. Your lender might reject your loan application if the remaining years of your property till the end of loan tenure is less than your lender’s standards. They might also reject the application if the location of the property does not fall within the geographical limits defined by the lender.
- Down payment: As per RBI’s guidelines, the LTV ratio for a home loan cannot exceed 90% of the property’s value. This implies that you will have to pay a certain amount as a down payment to buy the home. Contributing more towards down payment helps reduce the loan amount and the LTV ratio, thereby, increasing overall home loan eligibility.
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How to Enhance Home Loan Eligibility
Some of the ways to improve home loan eligibility are as follows:
- Improve credit score: Credit score is the reflection of how well the debt has been handled. Maintaining credit utilisation ratio below 40% and paying credit card bills and loan EMIs in time show responsible credit behaviour. Such behaviour, when practised regularly, leads to a good credit score, which further improves the chance of loan approval and of getting better loan rates. A poor credit score, on the other hand, might make you pay higher home loan interest rates or lead to loan rejection. Therefore, the higher the score, the better it is. Adopting regular and disciplined usage of credit cards can help to build a strong credit score.
- Pay higher down payments: You might have to contribute 10-25% as down payment, as lenders can finance only up to 90% of the property’s value. Instead of giving a bare minimum down payment, make a higher contribution. Higher contribution as down payment will lower LTV ratio, which will improve home loan eligibility.
- Add a co-applicant: Due to inadequate income, low credit score or high debt-to-income ratio, your lender might reject your home loan application. If not eligible for a home loan, add a co-applicant to the home loan application and go for joint home loan. But that co-applicant must be an earning family member with good credit history and satisfactory repayment capacity. Doing so will increase home loan eligibility and help get higher loan amount. If the co-applicant or primary loan applicant is a woman, then you might get home loan at concessional interest rates.