When you apply for a Home Loan, the bank looks at your earnings, your liabilities, expenses, your job stability, and more. It’s also important to note that salaried applicants are favoured more than self-employed applicants because of the perceived assurance of a steady income. Besides this, factors like age and financial status also come into play.
To Get Approval for a Home Loan
Once you have found a house or apartment you like, and which looks to be within your budget, you should immediately begin the loan shopping process. Spend some time checking out various Home Loan offers online and do a comparison of their terms and features. Then just shortlist a few and select whom to approach first.
You’ll have to fill in an application form and supply some documents like ID proof, address proof, and income proof. Then you’ll have to wait until the bank approaches you with an offer. However, most lenders now provide you with the ability to use their website for application for Home Loan, so you can do this online, making the process exponentially quick and easy.
Banks usually offer loans that are up to sixty times the monthly income of the applicant. However, if you expect to get a loan amount that is exactly sixty times your gross salary, then you will most definitely be disappointed. Even from your take-home package, banks deduct a few items when they make their own calculations.
Initially, lenders will look at your basic salary and discount most special allowances. They also don’t take performance bonuses and other variable components into the calculations as they do not form a part of your steady income.
For the self-employed, if you have a good credit score, and a good amount of savings and investments, it shouldn’t be a hassle getting approved.
Your past records with repayments on loans and credit card dues provide details about your creditworthiness. Credit rating agencies keep track of your credit records which can be easily accessed by banks to check your credit history. If you have strictly kept up with your loan payments and regularly pay off your credit card dues, you will have a good credit score. If you have accumulated dues on your card and if you have defaulted on loan payments, then your credit score will be drastically low and this increases the chances of your loan application getting rejected.
If you are younger, it means that you have a long period of productive employment still ahead of you. This translates to more potential for an increase in earnings. So, younger applicants will get better loan terms than those who are closer to their retirement age.
You might be earning a good salary that can easily cover the needed EMI. But unforeseen circumstances like loss of job can affect your repayment capacity. So banks also look into your savings and investments, to assure themselves that you have the financial resources to fall back on to tide over tough times.
Your Liabilities and Other Regular Expenses
A huge chunk of your income goes towards meeting many recurring commitments. If you have other loans for which you are paying EMIs, and a sizeable amount of monthly expenses, the bank subtracts all these from your income to calculate whether you will be able to pay the EMI on the loan. If your monthly outgo is high, the bank may reduce the loan amount or even reject your application outright.
The Property Records
You have to provide clear records of agreements between you and the developer or the seller. The seller of the property, if it is a resale home, should provide clear proofs of ownership.
There are other documents and records that a bank may ask for with respect to the property you intend to buy. Each bank has its own set of criteria for property approval when processing a Home Loan. If the property you intend on buying does not fit in with the bank’s requirements, your loan could get rejected.
The Down Payment and the LTV
Mostly, banks provide up to 85% or 90% of the property value. The loan percentage is determined by the LTV as laid down by the RBI. The LTV or Loan-to-Valuee ratio is the ratio of the loan amount against the actual value of the property. For properties that cost up to Rs.30 lakhs, you can almost 90% of the property value as loan. If the cost is between Rs.30 lakhs to Rs.75 lakhs, you can probably get a loan which will be able to cover around 80% percent of the cost. For higher amounts, you can only avail of a loan for 75% of the property value or less.
So, you have to be prepared to provide the remaining amount as down payment to the seller before the bank will approve the loan. Before you approach a bank for a loan, make sure that you have the funds for the down payment that you have to make.
There are many other factors that could have an effect of whether your loan application gets approved or not, and whether you will be sanctioned the full amount you asked for. Still, if you take care to keep your credit record clean, and can provide adequate proof of savings to back your income up, you will probably have a higher chance of approval.
Home Loan Process
The Home Loan application and approval process can be long and complex. You have to furnish various documents like your ID, age, address, income, and other proofs, records of investments, records and deeds pertaining to the property you are buying, and numerous other documents. The paperwork is the most difficult part of the process, so you need to be ready with as much of the deeds, records and agreements that are required by the bank to quicken the approval process.
Before you decide on the loan amount, use the Home Loan eligibility calculator available online to calculate Home Loan eligibility based on your age, income, the EMI you are willing to pay, and the interest rate you are comfortable with. Make sure you can afford the EMIs after meeting all your regular monthly expenses. Do not take on additional loans while applying for a Home Loan.