Are you looking to avail a home loan? Here are some home loan eligibility parameters considered by lenders.

What is home loan eligibility? This is one of the frequently questions asked by home loan seekers. Here, we aim at discussing home loan eligibility and what are the documents required for a home loan.

Every lender, may it be an NBFC or bank, evaluate your Home Loan Eligibility before approving your home loan. This is important as home loans are big-ticket loans. Lenders, as per RBI, are permitted to fund up to 75-90 % of the home loan amount, wherein the remaining amount must be funded from the seeker’s own pocket. As lenders sanction as high as 90 percent of the loan amount, they must make sure that the applicant has the sufficient means to make loan repayment and that they can repay the borrowed proceeds in the form of EMI on time without defaulting or missing out on any payment. Listed below are some parameters that assist home loan lenders in determining whether the home loan seeker is eligible to avail of the home loan.

Factors or parameters taken into consideration by lenders to determine seekers’ home loan eligibility:

Lenders factor in various parameters while disbursing your home loan. Some of the most prominent and crucial factors impacting your home loan eligibility are as below:

Your age: Your age is considered one of the crucial parameters factored in by lenders for determining if you are eligible for a home loan. Ideally, lenders are comfortably disbursing the home loan to younger seekers as they will usually have several employment years as well as a steady income ahead for making the home loan repayment on time. The basic idea here is that home loans can be paid back while the applicant is still employed. The older an applicant gets; his home loan eligibility reduces. However, they still can avail of home loans at shorter repayment tenures.

Your employment status: The employment status of an applicant is the next parameter that determines your home loan eligibility. Lenders are usually happy to disburse home loans to applicants who are employed with reputed organizations. Also, they require to be employed, most preferably with the same organization, for at least a period of three years so that their home loan application may be considered. In case there is any gap in the employment status of the applicant, or if they switch jobs frequently, there stand high chances that their home loan application may be rejected despite providing all Documents Required for Home Loan approval.

Your credit score and credit repayment history: When you make an application for a home loan, there are various documents required for home loan evaluation, which you must submit on time. Besides this, they even fetch your credit score document from the credit bureau. This document endows the lenders with insight regarding your credit repayment history, whether you have timely paid your credit card dues and previous loan EMIs by the due date or have defaulted on making repayment of them. This insight about your credit repayment history clubbed with your credit score assists them to evaluate your home loan eligibility. Typically, lenders prefer your credit score to be 750 and above out of 900 to be eligible to avail of home loan approval.

Income to expense ratio: Many lenders also assess your income to ratio or expense ratio to check whether you have sufficient income and hold adequate repayment capacity to make timely repayments. As such, they assess how you usually spend your monthly income. To ascertain this, lenders require to know whether you have any ongoing debts to make their repayments. Also, they evaluate how frequently you use your credit cards and how much limit on your credit card you usually use every month. Ideally, your CUR (credit utilization ratio) must be up to 30 percent and not above that. Having a CUR of over 30 percent may make lenders view you as a credit hungry individual who may hold the potential to default in future due to a lot of debts.

Note that your income to expense ratio must be up to 60 percent of your income after deducting your mandatory monthly expenditures.

Documents required for home loan include:

When you make a home loan application, lenders usually ask you to submit various documents to evaluate your home loan eligibility. These documents include:

·       Identity proof documents: An ID proof document is approved by the government, which features your photo. For instance, driver’s license, PAN card, voter ID, Passport or Aadhaar card.

·       Income proof documents: Salaried must hand over photocopies of the bank statements of past six months and salary slips, Form 16, IT returns of past 3 years etc. Business owners or self-employed must give their business proof documents, P/L statements or profit & loss statements, audited balance sheets, and IT returns for the past 3 years.

·       Address proof documents: You must submit photocopies of your document featuring your address like driver’s license, voter ID, passport, utility bill or Aadhaar card.

Note that a home loan is a high-risk credit option, and thus, all lenders like banks or NBFCs must assess your home loan eligibility before providing you with a loan to purchase your home. Besides understanding your home loan eligibility through the home loan EMI calculator and by assessing your monthly budget to know if you can meet the home loan EMI, you should make sure to build sufficient down payment amount and arrange for various fees like processing charges, which is associated with a home loan. Moreover, also, ensure to check your credit score before availing of a home loan. This is because your credit score is given the maximum weightage to determine your home loan approval chances. If you have a higher credit score of 750 or more, your home loan eligibility chances automatically rise. In case your credit score is below 750, ensure to first improve your score by following various credit improvement habits to increase your score before submitting your home loan application. 

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