Getting a home loan sometimes can be as difficult as buying a new home. While each lender may have their own criteria of evaluating a home loan application, here are few factors that almost all Banks/NBFC’s consider.
Your disposable income or is the most important criteria for your home loan appraisal. It is that portion of your total income which can be utilised by you for payment of EMIs. Typically, Banks/NBFC’s consider 50 to 75% of your total income as your EMI repayment capacity.
Higher Disposable Income => Higher EMI Repayment Capacity => Higher Loan Eligibility
In addition to your salary or business income, it is always better to provide details of any additional income from rent, interest or dividends at the time of making the application. This will help you in getting a higher sanction in lesser time and without any hassles.
Adding your spouse or children (who generate any income) as joint applicants to the loan can further enhance your loan eligibility.
A Home Loan of Rs.20 lakhs with an EMI of Rs. 18,000 does not impact your loan eligibility as much as a personal loan of Rs.10 lakhs with an EMI of Rs. 25,000.
It is not the amount of loan but the EMI that you are paying which reduces your loan eligibility.
Higher Existing EMIs => Lower EMI Repayment Capacity of the applied loan => Lower Loan Eligibility
Serving many EMIs of consumer loans or personal loans that aggregate to a large amount may even result in a decline of your home loan application.
Banks/NBFC's judge your credit history through your credit score. A low credit score may reduce the chance of securing a home loan or lead to higher rates. Most banks rely on CIBIL (Credit Bureau of India Limited) for studying the credit score and credit history of a prospective borrower. The overwhelming popularity of CIBIL has led to credit score being referred to as CIBIL score in common parlance.
Usually a CIBIL score of 750 or more is considered a good credit score for all types of loans. However, most banks will be willing to give home loans to applicants with a CIBIL score of more than 650.
Many factors impact CIBIL score adversely. However, 2 of the most common such factors include:
1. Overdues (Payments not made beyond the due date) on any credit card or loan account
2. Many CIBIL enquiries resulting from too many loan applications in a short time span
Property verification is the most complex part of the loan appraisal process. Generally, it has 2 aspects:
1. Legal Norms: This involves carrying out an ownership search for the property with the registrar or with the builder (in case of under construction property). Banks will lend only if the property being mortgaged has a clear and valid title.
2. Technical Norms: This involves establishing the market value of the property and checking whether the property has been constructed as approved by the local authority. In case of independent houses, villas or builder floors, sanction map may have to be provided for technical assessment.
Your age determines the tenor for which the bank will lend. Loan tenor is determined by the balance working life of the applicants/co-applicants. However, the maximum tenor that the banks lend for is 30 years.
For Salaried applicant, working life is determined by the retirement age of your current employer. However, some banks take a standard retirement age of 60 or 65 years. For businessmen and self-employed professionals most banks take a standard retirement age of 65 to 70 years.
Lesser Age => Higher tenor => Higher loan eligibility.
Work Experience and Occupation Stability:
Continuous work experience of at least 2 years is required for salaried applicants. For businessmen or self-employed professionals, a 5-year business continuity is desired. Switching too many jobs or businesses during your career may have a negative impression on Banks/NBFC's.
Salaried applicants working with large companies, PSUs and government departments or professionals like Doctors and Chartered Accountants are the most preferred borrowers. Loans to businessmen and employees of small companies normally involve more due-diligence.
Within each of the above factors, Banks/NBFC's have created a complex web, where one unfavourable factor may be offset by another more than favourable factor. For instance, a frequent change in jobs can be offset by a high salary. This web is often referred to as “Credit Policy” and is often not understood by most "Mortgage Advisors" or "Sales Representatives" of Banks/NBFC's. This leaves the borrowers completely clueless when the loan application gets delayed or rejected. A broad understanding of the above factors gives you a good starting point to question your advisor on various aspects and helps you chose a lender which is likely to process your application favourably.