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Confused How Home Loan Eligibility is Determined? Here's the Ultimate Guide!
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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.
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Rajiv was eagerly looking forward to buying his home in Mumbai to call his parents to live with him. He had researched extensively and chosen a lender that gave him low-interest rates and the best services. He also had all the documents in order, as he knew that it was a crucial requirement for a home loan. However, when he applied for the loan, he was disappointed to know that his application was rejected. On inquiring, he came to know that the reason was his ineligibility for the loan. Surprised and disheartened, he decided to meet the bank representative. Suresh, his relationship officer, took Rajiv in his counsel and explained to him the process they followed to determine the applicant’s eligibility.
Before availing a home loan, it would help to know how the home loan eligibility is determined. Find out more below.
What is the eligibility criteria for a home loan?
To be eligible for a home loan, you must be at least 18 years old but less than 60 years if you are a salaried employee. However, if you are a self-employed applicant, you must be between the age bracket of 18 and 65 years. Applicants belonging to this age group are considered to have a regular source of income and good repayment capacity. Lenders do not usually approve the home loan application of people older than 65 years, as most of the applicants retire by that age which can affect their repayment capability.
Your income is a crucial determinant of your eligibility. If you live in metro cities like Delhi, Mumbai, Bangalore, Chennai and Pune, you must have a monthly income of at least Rs 20,000 per month. Similarly, you must have a minimum income of Rs 15,000 if you are residing in any other city.
Lenders also review your income compared to your debts while determining your eligibility. When you apply for a home loan, the lender considers your debt-to-income ratio. If you have debts, your eligibility gets reduced. Similarly, if you have no debts but have a low salary; it can affect your eligibility too.
For example, if you earn Rs 45,000 per month and have no financial obligations, you can avail a loan amount of approximately Rs 35,00,000 at a tenure of 20 years and an interest rate of 6.65%. On the other hand, if you earn a monthly income of Rs 75,000, and have a financial obligation of Rs 30,000 monthly, you would not be able to get the approval of the home loan for an amount more than Rs 25,00,000. Therefore, if you keep your Fixed Obligation to Income ratio (FOIR) below or equal to 50%, you can expect to get a much higher loan amount.
For self-employed applicants, the lender considers the annual income of their businesses and the average of their income tax returns of the last three years. Similarly, for retirees, who are not actively working, their home loan eligibility is based on FOIR. For such applicants, the home loan FOIR is capped at 40%.
While determining the eligibility, lenders closely scrutinise the financial credential of the applicants. However, they also review their credit score and job profile. Irrespective of your income, you must have a credit score of 700 and above for home loans.
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