Ashok Singh, 35, had been looking out for a 3-BHK flat in Delhi for over a year. With declining rate of interest and stagnant real estate prices, he thought that this might be the best time for buying it. As soon as he found a property of his choice, he registered himself with several online home loan portals to shop for the best home loan deal. Given that he had a high credit score and stable job with a leading MNC, he was confident that the home loan approval process would be a swift one. However, his loan requests were being rejected by one lender after another because of a small issue – a 1 bedroom structure in the parking level of his apartment complex was being ruled out as illegal by the loan providers; causing temporary halt to his plans of buying a house on his own.
Acquiring a home loan can be an equally arduous task, if not more, than getting your home in the first place. While each lender may have their own criteria of evaluating a home loan application, here are few factors that almost all lenders consider.
Disposable income: Your disposable income is one of the most important criteria of judging your home loan application. Typically, it is derived by deducting your statutory deductions, monthly expenses and existing EMIs from your gross income. Higher your monthly disposable income, higher will be your loan eligibility. Typically, a lender will expect your loan EMI to be within 40% of your monthly disposable income. However, some lenders consider your gross income for judging your home loan.
If your disposable income is comparatively lower and you wish to opt for higher loan amount, you may consider adding other working members of your family, like your spouse or children, as co-applicants.
Credit history: Lenders judge your creditworthiness through your credit score. A low credit score may reduce the chance of securing a home loan or lead to higher rates. Don’t apply for loans with too many lenders within a short period as it will pull down your credit score. CIBIL classifies a credit score of over 770 as a good credit score. However, other credit bureaus may have different scoring patterns and yardsticks of a ‘good credit score’. Find out your credit score before applying for home loan. You can do so by visiting online portals such as www.paisabazaar.com.
Complying legal norms: Lenders will conduct independent verification of your property while approving your home loan. They only provide loans to house properties that have been cleared by local authorities and have clear and valid title. Some banks also offer special loan packages for properties listed in their database of approved projects. Properties included in their database are considered reliable since they do the due diligence of the projects themselves. Approvals on home loans for such properties is easier and faster.
Occupation stability and continuity: Lenders prefer to give home loans to people with stable job or income source. They also consider the time period that you have been working with your present employer. Switching too many jobs during your career may also have a negative impression on the lenders. In terms of occupation, government and PSU employees are the most preferred ones followed by doctors, chartered accounts and employees of top private-sector companies. Self-employed people and employees of small companies are the least preferred of all home loan applicants.
Age: Your age will play a major role during the approval process of your home loan. Although home loans carry maximum tenure of 30 years, banks usually prefer borrowers to complete the repayment by time they reach 60–70 years of age. Thus, people in the age group of 25–45 years are the most preferred ones as they have more than 20 years of their working life to pay off their home loans. For borrowers above 50, try to rope in a working wife or earning children as co-applicant(s) to increase your home loan eligibility.
With the arrival of online home loan portals, getting a home loan has become easier. Generally, public sector banks are the most stringent when it comes to loan approval process. However, their rate of interest is also the lowest. The reverse is true for housing finance companies and other NBFCs.
Approach the NBFCs if bigger banks refuse to finance your home purchase. After all, you always have the option of transferring your home loan later. While most of the factors that banks consider have to do with you, the legality of your house property is something that is beyond your control. Thus, always ensure that the property has all the required clearances before making the final decision.
By Naveen Kukreja – CEO& Co-founder, Paisabazaar.com
(Published in Financial Express on October 12, 2016)