Home loans, in India, continue to be one of the most popular means of funding the purchase of a home. However, not everyone qualifies for a home loan. Lenders want to avoid any kind of risk while lending and therefore, run each home loan application through thorough eligibility checks. A borrower gets a loan only when they qualify for the eligibility criteria set by a lender. So, what are the factors that determine an applicant’s eligibility for a home loan? Is it possible to enhance one’s eligibility for a home loan? In this article, we answer these questions.
Let us start by looking at the factors that affect a borrower’s home loan eligibility.
Factors That Affect Home Loan Eligibility
1. Credit Score
Your credit score is a three-digit number, between 300 and 900, that depicts your repayment capacity as well as your trustworthiness as a borrower. The closer you are to 900, the better are your chances of getting a home loan on beneficial terms and conditions. The credit score of an individual considers several different factors, such as an individual’s income, repayment history, debt obligations, etc.
When it comes to home loans, lenders extend their best offers to individuals who have a credit score of 750 and above. If your credit score is between 600 and 750, you might be able to get a home loan, but your lender will certainly charge you a higher interest rate. If your credit score is under 600, consider yourself ineligible for a home loan and do not apply before improving your credit score or your application will most certainly face rejection.
Lenders extend their best home loan offers to young individuals, primarily because these individuals have many working years ahead of them and lenders expect that with time, the salary/income of these individuals will also increase, which in turn, will also increase their repayment capacity. Thus, lenders believe extending loan offers to young applicants involves minimum risk. Older people can also get home loans. However, lenders do not extend their best offers to borrowers nearing retirement.
3. Income Stability
If you want to get a home loan on favourable terms and conditions, know that you will be required to prove that you have a stable income and can repay the loan you have opted for easily. Most lenders will ask for proof of income to this effect.
If you are a salaried individual looking for a good home loan deal, know that your lender will do a background check on you before extending you any offer. They will offer you a good deal only if you are employed with a reputed and trustworthy company and can show job stability. If you have been with the same firm for more than 3 years, this detail will work in your favour as your lender will see you as a stable and risk-free borrower. If you are a business owner looking for funding, you will be required to show profitability and at least 5 years of business continuity to be able to get yourself a good deal.
4. Property You Plan to Pledge as Collateral
Lastly, your eligibility criteria as well as the final home loan interest rate offered to you also depends on the property you have selected. If the property that you wish to buy and plan to mortgage with the home loan you are taking is in a posh locality and comes with all good amenities, your chosen lender will offer you a good home loan deal. However, if the property you plan to buy is located on the outskirts and is old and in dilapidated condition, chances are you will get a home loan on a much higher interest rate and it won’t be quite surprising if some lenders out rightly reject your home loan application.
How to Enhance One’s Home Loan Eligibility?
If you wish to avail yourself of a home loan on favourable terms and conditions, make sure to qualify your chosen lender’s eligibility criteria for a home loan. The good news is it is possible to enhance one’s eligibility for a home loan. How? Read on to know two simple ways of doing so.
- If you have a bad credit score, do not apply for a home loan immediately. Take some time to work on your credit score and once it starts looking better, then apply for a home loan. You can make your credit score go higher by paying off some debts, paying all your EMIs on time, not borrowing anything from any lender for some time, etc.
- Secondly, if your home loan eligibility is low because you are a senior citizen or your income is low, you can enhance your eligibility by adding a co-applicant or co-borrower to your application. Make sure this co-borrower is someone with a good credit score and monthly income as well as decent job stability.
Getting a home loan is easy if you understand the home loan process and the factors that affect a borrower’s eligibility for a loan. We hope the tips given in this article will help you get yourself the most lucrative home loan deal.