In the aftermath of the COVID-19 pandemic, to give a boost to the Indian economy and the real estate sector, the Reserve Bank of India reduced the Repo Rate by a great margin causing all loans, including home loans, to become a lot cheaper. The reduced home loan interest rates played a massive role in the revival of the real estate sector. However, now that the real estate sector has bounced back completely, the RBI has been continually increasing the Repo Rate. However, even after the recent Repo Rate hikes, home loans continue to be way more affordable than they were a few years ago.
If you are planning to avail of a home loan to help you buy your home, you must check your home loan eligibility. Doing so will help you draft a more accurate loan application and increase your chances of loan approval. Here’s Why.
Here’s Why You Must Check Your Home Loan Eligibility Before Initiating the Home Loan Application Process
With real estate prices going through the roof and homes becoming more and more unaffordable, more and more people are applying for housing loans to fulfil their dream of becoming homeowners. Lenders now get thousands of housing loan applications each month and they test all applications against a set of qualifying criteria. These qualifying criteria are designed to help lenders identify unreliable and untrustworthy borrowers and reject their loan applications to minimize the risk of loan default.
One must check their housing loan eligibility to increase their chances of loan approval and reduce the likeliness of their housing loan application getting rejected. Home loan rejection is something all potential borrowers must avoid as application rejections negatively impact a borrower’s credit score and minimise their chances of availing of a loan in the future. Further, when a borrower meets a lender’s housing loan eligibility criteria completely, they have high negotiating power over the lenders and can negotiate for a lower interest rate, higher loan sanction, etc. Owing to these many different reasons, checking one’s home loan eligibility before beginning the home loan application process becomes important.
Let us now look at the factors that affect a person’s home loan eligibility.
The following factors have a significant impact on a borrower’s home loan eligibility.
One of the most important factors that will determine and affect your home loan eligibility is your credit score. The credit score indicates a borrower’s repayment capacity and creditworthiness. It’s a three-digit number between 300 and 900 that tells a lender the risk involved for them in becoming the borrower’s housing loan partner. A high credit score, i.e. anything between 750 and 900 indicates high creditworthiness, high repayment capacity and low risk for the lender. On the other hand, a low credit score is reflective of the borrower’s low creditworthiness and repayment capacity and therefore, implies high risk for the lender.
A high credit score enhances home loan eligibility. If your credit score is low, do not worry. It is possible to enhance one’s credit score by practicing financial discipline and keeping one’s debt situation under control. All borrowers must check their credit score before beginning the home loan application process and make sure it is at least 750 if they wish to avail themselves of a lucrative home loan deal.
Your income and job stability also affect your eligibility. Borrowers with a stable job and stable income are less likely to default on loan repayment as compared to borrowers who switch jobs often or do not have a stable source of income. Most home loan lenders ask borrowers to show at least 3 years of job and income stability or 5 years of business vintage. If you are someone who switches jobs often, getting approved for a loan may not be as simple for you as think. In this case, to enhance your chances of loan approval, you must stick to a job for a while at least and then initiate the home loan application process.
Young borrowers who are still in the early stages of their career have more working years ahead of them and are more likely to have more promotions and higher income growth than borrowers nearing their retirement age. Therefore, lenders believe the likeliness of young borrowers defaulting on loan repayment is much lower as compared to borrowers nearing their retirement age. Young borrowers therefore also have higher home loan eligibility than borrowers in their late 50s or early 60s.
4. The Quality of the Collateral
Home loans are loans secured by a collateral. The property brought with the loan money serves as collateral. In case of loan default, the lender has the right to sell the property pledged as security for loan recovery. Therefore, the quality of the collateral matters a lot. Properties located in central locations, having all modern amenities and high resale value enhance a borrower’s loan eligibility. On the other hand, when a borrower pledges a property located on the outskirts or an old property having low resale value, the borrower’s eligibility goes down.
There is a direct correlation between housing loan eligibility and one’s chances of home loan approval. Understanding home loan eligibility is crucial to ensuring quick approval and good loan terms and conditions.
If you are planning to apply for a loan, finalise your lender, then go to their website and go through their eligibility criteria. Move ahead with the loan application process only if you meet their eligibility criteria. If you don’t, it is better to wait, enhance one’s home loan eligibility, and then apply for a loan. Improving your eligibility will take a few months, so you must learn to be patient. Further, you can check your eligibility using a housing loan eligibility calculator. These calculators are easily available on the internet and give you the home loan amount you qualify for based on your income, city of residence, and other related things. It is free and easy to use, and applying for a loan amount one qualifies for or something lower leads to enhanced chances