There may come a time in your life when you realize that you’re done living on rent. You would want to move out of your stuffy apartment and buy yourself a warm, cozy home. But purchasing a house is a huge investment, and most people aren’t financially equipped to meet the expenses.
That’s when a home loan comes in handy.
It’s a type of loan that a bank or financial institution grants to individuals looking to buy their own home. The amount provided by the bank needs to be repaid, with interest, over a stipulated period of time, in the form of equated monthly installments. Generally considered to be one of the simplest ways of paying for a home, the interest rates on home loans are also a lot lower than most others.
But before you approach a lender to ask for the finances, you need to find out if you’re eligible for a home loan in the first place. Here’s how you check.
Determine your Home Loans Eligibility
When you approach a lender and ask them for a particular loan amount, they’ll assess a number of factors before granting you the money.
The younger you are, the more likely that your request for a loan will be approved. Of course, there’s a minimum age limit, and you need to be at least 24 years old to apply for a home loan. The maximum age limit for a loan application is 60 years for salaried individuals, and 65 years in the case of self-employed professionals.
Before granting you the loan, lenders would want to ensure that you’re able to pay off your loan while still employed. If you apply for a loan when you’re younger, financial institutions are more willing to approve it because they know that you’ve got many years of employment ahead of you and will be able to repay the debt.
So as you get older, lenders become more reluctant to grant you the loan, and may even charge higher a rate of interest.
Earn a Sizeable Income
The amount of loan you can apply for is also determined by the income that you’re earning every month. The lender needs to assess your financial situation and calculate whether you’ll be able to comfortably pay the EMIs. They would rather provide a loan to someone who has a low probability of defaulting on payments.
But apart from income, most lenders also consider your profession. If you’re a doctor, lawyer, or accountant, it’ll be a lot easier for you to avail the loan that you’ve applied for. Holding an irregular job with fluctuations in monthly income makes it less likely for a bank to approve your loan. And even if they do, you’ll be charged a high rate of interest for it.
Pick the Right City
Another home loan criteria that lenders take into consideration is the city you’re living in.
If you reside in a more expensive Tier-1 city, like Mumbai or Delhi, you’ll be eligible for a much larger loan amount than those living in Tier-2 cities, like Agra and Meerut.
This is because the cost of living in certain Tier-1 Indian cities is a lot higher than it’s for Tier-2 or Tier-3 cities. This means that the residents of those cities will be earning a higher income, increasing the likelihood of them being able to repay their home loan.
Keep a top-notch Credit Score
Finally, financial institutions will inspect your credit score to determine whether granting you a loan is worth the risk involved.
They’ll take a look at your credit history to see whether you’ve been punctual with the repayments on all your other loans if any. They’ll also look into your relationship with any other lenders you might be dealing with to find out whether you’re a reliable customer.
Apart from inspecting your repayment history, lenders will also take a look at your credit score. Having a below-average credit could result in paying a higher interest rate and if you’ve got poor credit, a lender may even turn down your loan application.
These are a few of the specifics you need to keep in mind before approaching a bank or financial institution. Lenders aren’t too keen to part with their money, unless they’re sure that you’re a safe investment.
However, there are ways for you to increase your eligibility for a home loan.
Pay off your Debts
If you’re burdened by any outstanding debts or loans, try clearing them before you apply for a home loan. It could go a long way in increasing your eligibility.
Lenders want to ensure that you’ll be able to pay off your debts, and if you’ve got other loans tying down your finances, it could decrease the possibility of that happening.
Even if you’re unable to pay off the debt, ensure that you’re making regular monthly payments, as that will improve your credit rating and increase your chances of procuring a home loan.
Try Clubbing Incomes
If possible, apply for a joint home loan with your parent or spouse. When you approach a bank for a joint home loan, they take the incomes of both you and your co-applicant into consideration when determining your loan amount.
So you can pool in your resources and take out a much larger loan than you would be able to on your own. It also tells your lender that you’re in a strong financial position and will be able to comfortably make repayments.
These are just two of the simplest ways to increase your odds of getting a home loan approved.
It’s important to keep all your documents ready before you approach a lender. This includes your identity proof, proof of residence, financial statements for the last 6 months, and proof of business in case you’re a self-employed individual.
It’s best that you approach a bank only once you’ve gathered all the necessary paperwork. Without the necessary documentation, a lender may turn you down without even considering your loan application. And when a loan application is turned down, it reflects poorly on your creditworthiness, irrespective of the reason.
So prepare yourself before you decide to take out a home loan, and assess your finances to determine whether you’ll be able to repay the debt without too much of a hassle. You can apply home loan that is the simplest method of finance to buy a new house, and you need to make the most of it.