Buying a house is very difficult for an individual solely relying on savings. Many people choose to stay on rent as they find it much more affordable than buying a house. However, if you dream of owning a house, a home loan can make it possible. Such a loan can provide the finances required to cover up to 80-90% of the property purchase, depending on the cost of the house.
Now, before going ahead and talking to a lender, it is essential to first learn about their home loan eligibility criteria. All lenders have specific standards that applicants should comply with to get loan approvals. Not doing so can result in their home loan applications getting rejected. Lenders set their home loan criteria on certain factors, based on which they decide whether to approve or reject a home loan application.
Take a look at five key factors that directly affect housing loan eligibility:
1. Employment history
An applicant’s employment history plays an essential role in getting loan approval. Any lender providing a housing loan will want to ensure that the borrower has a stable employment record. This is because a good employment record is a sign of stability and means that the borrower will be able to repay the loan without any problems.
2. Credit record
When you apply for a home loan or any other loan for that matter, lenders will always check your credit record before approving the loan application. A good credit score will boost housing loan eligibility and bring other benefits. For instance, if you have a good credit score of 750+, lenders can offer a lower home loan interest rate and a more significant loan amount.
3. Monthly income
Any lender has a minimum income criterion for applicants applying for home loans. This criterion also depends on the city you live and work in. Most lenders set a minimum income criterion of Rs. 25,000 a month. It is best to check with your lender regarding their specific requirements when it comes to monthly income before applying for a home loan.
4. Debt to income ratio
While you may have a good monthly income, it is not a positive sign if most of the funds are being spent clearing outstanding debt. It is better to be debt-free while applying for a housing loan, as this leaves more room to use your income to pay this loan’s monthly installments.
5. LTV ratio
The LTV (Loan to Value) ratio is the loan percentage given to the borrower against the property value. After assessing the LTV ratio, a lender will evaluate the risk of providing a loan. A higher LTV ratio will mean that the loan amount is higher, and the down payment will be lesser. However, if you make a higher down payment, the LTV ratio is lower, making the loan approval easier.
Therefore, these are the factors that lenders consider while determining your home loan eligibility. These criteria could differ from lender to lender, so it is better to first inquire about the exact requirements before applying for the loan. You can also use a home loan eligibility calculator, which can help avoid your home loan application from getting rejected.