The determining factors for home loan eligibility

The term ‘Home Loan’ is very familiar to everyone or at least for the people buying a house. It is the majority of your finance that you need for fulfilling your home buying dream. So choosing the right home loan with the right interest rates is extremely important, hence, you must plan ahead. Keeping a check on your finances is crucial not only in the home buying process but also in other verticals of life.

So let’s now jump into the home loans…

When you plan on buying a home, you check all the corners beforehand such as researching about the property, the location and of course, your financial situation. Now when I say financial situations, it means checking all the possibilities of income and expenses. It includes everything starting from funding your home down payment, which is usually 20% of the property price, your daily essential household expenses, savings for the future, and your goals. The down payment is a huge chunk of your savings that you need to part with at once. To tackle this, you should have enough savings for it and starting early is always better.

Assuming that you have managed your finances well and are ready with the home down payment, let’s move towards the home loan application. One of the major factors that determine your home loan eligibility is your income, however, there are other factors that work behind the scenes.

The starting point of your home loan eligibility is your income. How much money you make surely interests the lenders. Generally, lenders work towards considering 40%-50% of your income to service the home loan. If you belong to a much higher income category, the higher will the percentage of your income. The more you earn, the more you pay but you shouldn’t go above the above-mentioned range. The percentage can vary among different lenders and so here comes into play is your research of the market. You must plan a budget for buying your new home and stick to it and choosing the right lender with the right amount is important.

In case you are repaying an existing loan, then it could impact your eligibility to get a good home loan amount. In such cases, the lender will subtract the EMI of your existing loan from the amount that is available for servicing the home loan. So now your eligibility will be based on the remaining amount which is far less than it was at first. To avoid such situations it is advisable to prepay the existing loan if the outstanding amount is small. Try to keep your finance simple that will help you with your home financing.

Your age and the number of remaining working years also determines your home loan tenure. As a thumb rule, the retirement age of a salaried person is considered to be 60 years and for a self-employed, it is 65 years. Now let’s say you are salaried and in your 40s, then as per the rule, you have some 20 years left in your career. This will accordingly reduce the home loan amount.

The amount of home loan that you are eligible for will substantially increase if you add someone who the lenders will consider as co-borrower. The total income of both borrowers will increase the amount of your home loan. Similarly, if you choose a long tenure with the same income, then also the home loan amount will increase and if you have enough funds then you can partially or fully prepay your home loan later down the line.