April 2019 recorded a growth in home loan disbursement by up to 18.6%. Interestingly, a year ago, this number was at 14.9%. While a sharp rise in home loan approvals is noted, individuals must understand the factors behind it. Any applicant who checks all factors contributing to the eligibility along with document requirements beforehand can expect easy approval.

Home loans are financial products with big-ticket size repaid over long tenors, involving high risks for the concerned financial institution. Consequently, lenders strictly check home loan eligibility requirements to evaluate the risk involved in lending to a specific customer. As a result, most factors affecting eligibility and approval of such lines of credit also affect the rate of interest offered on a loan product. The essential factors deciding on the approval eligibility and applicant’s capacity to negotiate on home loans are discussed beneath.

Factors That Affect Home Loan Eligibility:

• Income: 

The income of a potential borrower is the most crucial home loan eligibility criteria initially checked by financial institutions. The decision on repayment tenor, which can go up to 20 years, receives significant weight depending on the applicant’s income.

• Past debts: 

Existing debts are accounted for by a financial institution before approving a home loan since they affect an individual’s capacity to pay EMIs in time. Financial institutions consider it to make sure that home loan customers can pay their EMIs while meeting other obligations without affecting their financial stability.

• CIBIL score: 

It is a 3-digit number that reflects the repayment habits of an individual. CIBIL score for a home loan does not just influence approval but also the interest rate. Potential borrowers should, therefore, be cautious about taking steps that result in a high score. 750 and above is the ideal CIBIL score that lenders seek when evaluating the loan application.

• Employment organization: 

Financial institutions assess the employer of a salaried loan applicant before deciding on the risk factor involved. It essentially carries a weightage in determining the approval as well as the rate of interest levied on this loan. Applicants working in government organizations and MNCs have better chances of approval than those working in organizations with lower recognition.

• FOIR: 

Fixed Obligations to Income Ratio is a crucial home loan eligibility requirement that financial institutions check. Essentially, it encompasses all financial obligations that a borrower must fulfill from his/her income, including the new EMI he/she seeks to pay on the housing loan.

• Age: 

The lower age of a borrower allows them a longer tenor to repay the loan amount availed. As a result, financial institutions consider the age of applicants as an important home loan eligibility requirement. Consequently, approval greatly depends on an applicant’s age. It also gives them an upper hand in negotiating interest rates.

• Property value: 

Home loans are secured loans sanctioned against property mortgages. The value of the involved property has a critical contribution in loan approvals since financial institutions rely on these properties to reclaim the loan extended in case of defaults. Borrowers should look and implement features that can improve their property value to avail home loans of high-value.

• LTV: 

Lenders extend a part of property value as a home loan while buyers must finance the rest on their own. Usually, this percentage, known as LTV or loan to value ratio, stretches up to 80% for reputed NBFCs. Thus, a property of high value can fetch the applicant a higher loan amount.

Any potential borrower keeping a watch on the above list of factors can improve their chances of home loan approval. They must also keep home loan documents handy to speed up the application process. 

Apart from home loan eligibility, borrowers must also consider interest rates offered by different financial institutions. Availing a home loan at a competitive interest rate helps in affordable and timely repayment of the loan.