A housing loan is a credit facility offered by financial institutions to help individuals buy their homes without financial stress. This tool is a great funding option not only because it enables you to keep your savings safe but also because of the tax benefits you receive under the Income Tax Act 1961.
And if you’ve found your dream home and are looking at applying for a home loan, this article is for you. Here we discuss home loan eligibility criteria and how you can make use of a home loan eligibility calculator. Let’s dive in!
Factors affecting housing loan eligibility
There are various criteria for home loans that influence your application. These include your income, age, loan tenure, etc. But there are three essential factors that play a significant role. Let’s take a look at these.
#1 Credit score
Your credit score can be understood as a measurement of your past credit behaviour. It indicates your creditworthiness and is one of the most important home loan eligibility criteria. And this is affected by EMIs, credit card payments, balance due and the like.
In India, this is calculated by credit bureaus like Credit Information Bureau (India) Limited, commonly known as CIBIL and The Center for Research in International Finance (CRIF) Highmark.
Your credit score is a three-digit number ranging between 300 to 900. The higher the score, the better your application looks to the financial institution. Usually, a score between 650 to 700 is satisfactory, while 700-750 is good, with 750-900 being excellent.
This is an essential consideration for your loan application as it signifies your ability to repay the loan. The financial institution you choose for a home loan will check your CIBIL score and credit report to ascertain whether your candidature can be approved.
#2 Employment history and income stability
Your employment history and income stability are the next important factor that is looked into as part of studying your application. This exercise helps the financial institution gauge your ability to repay the loan in relation to your income.
If you have a history of switching jobs abruptly, it can play against your application to inform the loan authority that your income inflow is erratic. On the other hand, if you have steadily grown in your industry, it bodes well for your application as it shows commitment and stability on your part.
The financial institution may need additional documents to ascertain their financial health if the applicant is self-employed. This could include their business’ bank statements, profit and loss statements, past records and the like.
#3 Personal Credentials
Apart from employment history and income stability, personal information also plays a key role. The criteria of age are given high weightage. Usually, financial institutions prefer applicants who can repay the loan comfortably before the age of sixty, which is generally accepted as the retirement age. This is because after this, the individual depends on a pension rather than a salary, and the chances of income growth are less with little to no change in expenses.
How to improve your housing loan eligibility
After reading about the three major criteria for home loans, we next discuss how you can improve your eligibility.
#1 Enhance your credit score
Since your credit score is one of the essential criteria when determining your creditworthiness, maintaining it around 700 is ideal. To do this, keep the following in mind.
- Maintain low Credit Utilisation Ratio (CUR)
- Maintain low Debt Income Ratio (DTI)
- Pay EMIs, credit card bills and the like timely
#2 Opt for joint home loans
Taking a joint loan not only improves your loan eligibility but also splits the burden of repayment while also offering tax benefits. But you must ensure that the person you choose for a joint loan has a stable credit history and is trustworthy to prevent issues down the road.
#3 Choose a longer loan tenure
Increasing your loan tenure will improve your loan eligibility. This is because the amount payable in EMIs will reduce, with the loan amount being stretched over a longer period. This makes repayment of the loan more manageable. However, you might end up paying more interest in the long run.
#4 Maintain your FOIR below 40%
Your Fixed Obligation to Income Ratio (FOIR) is the ratio of your debts to your income. This is calculated on a monthly basis. A low FOIR translates to increased chances of getting a loan. Generally, 40% or less is preferred.
#5 Declare any additional sources of income
Additional sources of income include rental income, part-time jobs and returns on investments. Disclosing these increases your chances of loan approvals by improving your creditworthiness.
#6 Aim for a higher down payment
Making a high down payment for your home loan means lower interest payable. Similarly, if you make a low down payment, you will pay more interest on the remaining amount in the long run.
What is a housing loan eligibility calculator?
Usually, if you have to calculate your home loan eligibility, you need to perform complex and tedious calculations. This can take time and effort that can be better utilised elsewhere. And that’s why you should use a home loan eligibility calculator.
This is an online tool that helps you ascertain your eligibility based on your income and repayment capacity. You can use this to calculate your home loan eligibility across different financial institutions and get an accurate idea of what you can expect.
Generally, home loan eligibility calculators need the following information.
- Age of applicant
- Loan tenure
- Monthly income
- Rate of interest levied on the loan
- Any other EMIs
On the basis of this information, the calculator will ascertain your eligibility for a home loan.
To sum up
Now that you know the top three factors to keep in mind before applying for a loan and ways to improve your application, you must have a better understanding of the housing loan eligibility criteria.
Further, with a home loan eligibility calculator, you can ascertain your loan eligibility without taking trips to various financial institutions. This online tool is immensely helpful in gauging whether your application will succeed.
But after you have your answer, the next hurdle to cross is finding the right financial institution to apply with. Why not let us help you on this journey? We at Tata Capital offer home loans at attractive interest rates and quick approvals to help you achieve your goals.
To learn more, visit our website and apply for a loan today!