home loan eligibility

Buying a home on loan involves great financial decision-making. Even the smallest mistake while purchasing a new home can spoil your desired and existing financial goals. Home loans are typically big-ticket and long-term borrowings. A variation in loan interest rates or loan charges can result in substantial dues. Based on whether you are planning to buy a ready-to-move-in or under-construction property, appropriate care needs to be taken while judging one’s home loan eligibility, choosing the appropriate loan product, and finalizing a loan amount. This has become even more crucial in today’s times when financial institutions, including banks, have reduced their home loan interest rates to encourage buyers to take that plunge. With the help of experts, we have enlisted some of the important questions that potential borrowers must ask themselves and that will help borrowers avoid errors while availing of a home loan.

 #1 What is Home Loan Eligibility?

Home loan eligibility is a set of criteria based on which a bank or any other financial lender assesses the creditworthiness of a borrower and their ability to repay a housing loan amount. Home loan eligibility is influenced by factors like age, credit score, financial position, credit history, other financial obligations, etc.

#2 How Does One Calculate Housing Loan Eligibility?

Housing loan eligibility is based on the current income as well as the repayment capacity of a borrower. Other factors including age, credit history, financial position, credit score, existing financial obligations, etc., also determine a person’s home loan eligibility criteria, 

#3 Why Should You Calculate Eligibility with a Home Loan Eligibility Calculator? And on What Factors Does Home Loan Eligibility Depend?

A home loan eligibility calculator typically offers the most accurate estimate of housing loan from a specific bank and thus, it is the best tool to calculate home loan eligibility. Further, home loan eligibility criteria depend on the following:

  • Present Age and Remaining Working Years: The age of the borrower plays a vital role in determining the home loan eligibility. The maximum loan term is capped at 30 years.
  • Age Limit for Salaried Borrower: 21 to 65 years
  • Age Limit for Self-Employed Borrowers: 21 to 65 years
  • Minimum Salary: INR 10,000 per month
  • Minimum business income: INR 2 LPA
  • Maximum Loan Term: Up to 30 years
  • Financial Position: The present and potential future income of the applicant(s) impact the housing loan amount.
  • Credit Score and Credit History: A cleaner repayment record is a positive.
  • Other Financial Obligations: Existing liabilities like credit card debt, car loan, personal loan, etc.

#4 How High Is Your Credit Score?

Most banks and lenders have now linked home loan interest rates with the borrower’s credit score. If your credit score is on the lower side, the bank or lender charges a higher risk premium, and the home loan interest increases accordingly. So, if you are unwilling to pay higher interest on a home loan, ensure that you maintain a credit score (above 750-800) when applying for a home loan and also during the loan tenor.

#5 Can You Afford a Home Loan EMI?

 A home loan is a long-term commitment. Before applying for a home loan, factor in the existing loans and the ones you plan to take in the future. This will help you evaluate your housing loan affordability. Existing loans can restrict one’s future repayment capacity. If you plan on taking a loan in the future, for example, an education loan to fund the education of your children, know that this new loan will most certainly reduce your repayment capacity and may make it difficult for you to repay the housing loan. You must, therefore, check the affordability of home loan EMI after considering expenses and loan obligations.

#6 Will a New Loan Impact Other Financial Goals?

Buying a home is a big dream for most, but one should not buy a home at the cost of curtailing one’s financial goals. So, you must ask yourself: will the loan you are planning to take impact your other goals, such as setting up your retirement fund or financing the education of your children?

Will taking a housing loan limit your financial freedom? If your answer to this question is yes, you need to rethink and also replan the house-buying decision. For instance, you can consider buying a cheaper home for easing the housing loan burden. In other words, you must always go for a home on loan when you are sure that it will not impact other financial goals. 

Final Thoughts

Once you have checked that you satisfy the home loan eligibility criteria, you will have to also consider how to apply for a home loan, and how to reduce the housing loan interest rate. Irrespective of whether you choose a bank or lender, it is better to do as much down-payment as possible. The higher the down-payment amount, the lesser will be the overall housing loan interest rate.