Aspects to Consider Before Applying for a Home Loan
Home loans help individuals avail of the much-needed finances when seeking high-value purchases like property buying. But the complete process, right from loan application to the repayments, require due diligence on your part before you decide to proceed. You need to be aware of the various aspects that may impact it; such as interest rate, credit score, loan eligibility, documentation, etc. They can make all the difference between housing loan approval and home loan rejection.
Factors to Consider Before Applying for a Home Loan
Some of the common elements that one must bear in mind prior to applying for a housing loan are:
01. Home Loan Eligibility Criteria
This is possibly the most significant factor that can make or mar your home loan approval. Lending institutions have a set of requirements that all potential loan borrowers must fulfil to avail of home loans. They consider several parameters related to age, income, employment status, credit score and property value. Together, these constitute the basic home loan eligibility criteria. Salaried, professional, and self-employed persons are eligible for obtaining home loans with certain variations as listed below:
Eligibility Criteria for Salaried Individuals
- They must be between 23 and 62 years of age (typically, the maximum age is considered for the time when the loan matures)
- They should be resident Indian citizens
- Applicants should have stable sources of income
- They must be employed either in the public sector, private firms or multinational companies with a minimum work experience of at least three years
Eligibility Criteria for Self-Employed Individuals
- They must be between 25 and 70 years of age (typically, the maximum age is considered for the time when the loan matures)
- They should be resident citizens of India
- They must be self-employed, with a running business for over five years
Eligibility Criteria for Professional Applicants
Professionals, specifically doctors and chartered accountants, are also eligible to secure home loans. The eligibility factors remaining the same here, they need to meet additional qualification criteria – doctors must hold an MBBS or higher degree and CAs should have a valid COP. The years of experience in their case is counted soon after gaining qualification.
Remember, these criteria are indicative and lenders may have other additional eligibility requirements for approving loan requests. Also, the maximum age considered is the age at the time of loan maturity.
Other Eligibility Essentials
Since income plays a huge role in determining the loan amount that can be sanctioned, one can show the income of a spouse when including him/her as a co-applicant for the loan. This helps greatly in enhancing home loan eligibility. Lenders approve applications of individuals, who can service their proposed loans with the right debt-to-income ratio.
This is important because if you have other ongoing loans or financial liabilities, you may not be left with enough money to manage a home loan. Additionally, one should have sufficient portion of their monthly income set aside for their regular expenses as well, after paying off the loan EMIs. You can improve loan eligibility by increasing the loan tenor, which will automatically bring down the EMI outgo.
02. Home Loan Documents
Along with the eligibility requirements, applicants must furnish supporting documents for the same. Lenders may ask for additional documents, as and when required. The standard list of documentation is usually as follows:
- KYC documents – These include proofs of identity and address
- Proof of income – Latest salary slips, Form 16, income tax returns, etc. of salaried applicants; profit and loss statements, balance sheet and other relevant papers for self-employed applicants
- Business proof – Proof of business existence with a minimum vintage of five years for self-employed applicants
- Account statements – Statements of your primary bank account of last six months
- Property documents – House title deed and allotment letter.
03. Rate of Interest
Generally, the home loan interest rate is linked to an external benchmark like the repo rate, which is set by the Reserve Bank of India, or the lender’s internal lending rate. This rate changes periodically, directly affecting your home loan interest rate.
Interest rates vary among lenders. They usually offer a suitable rate of interest, primarily based on an applicant’s loan eligibility and repayment capacity. Housing loans are offered with a fixed interest rate or floating interest rate as per the convenience of borrowers. However, ensure that you optimise your loan eligibility, to qualify for the lender’s low interest rate home loans with ease.
04. Credit Score
Lenders extend attractive interest rates to individuals with a favourable credit profile. A CIBIL/credit score of 750 and above can help you secure competitive loan deals and make significant interest savings. On the other hand, a poor credit score can mean a heavier interest rate and stricter terms, increasing the cost of credit. If you find that you have an unfavourable credit score, take necessary steps to enhance it and then approach your lender for securing housing loans.
05. Down Payment
The right loan eligibility can fetch you higher loan amounts as per need. Lenders may grant home loans up to 90% of the value of a property. Meanwhile, the balance sum has to be borne by the borrower as a down payment. If your finances permit, try to bear a heavier down payment so as to avail of a lower principal amount, which will keep your interest burden under check.
06. Associated Charges
Lending institutions may levy other home loan-related charges like loan processing fee, late payment penalty, foreclosure and pre-payment charges, and so on. Borrowers must factor in these associated variables that can increase the cost of their housing loan.
Potential home loan applicants can check the interest rates, terms, added services and benefits of different lenders while selecting the optimal housing loan offers. You can also use a home loan eligibility calculator to assess your eligibility in securing a home loan. In case of low eligibility, you should try to improve upon it before applying. One can also access a home loan EMI calculator to get an overview of the loan; and even customise the principal amount, tenor, and EMI according to financial comfort.