Jun 13, 2023

Top Factors Affecting Home Loan Eligibility

by Godrej Properties Limited

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Home loans help fulfill a homebuyer’s dream of becoming a homeowner. However, getting a home loan at a lower interest rate plays an important role in affordable EMIs. So what factors determine interest rates of a home loan? Besides one’s credit score, other factors carry equal significance. Below we discuss some of them.

Key Factors that Influence an Individual's Eligibility for a Home Loan:

  • Credit Score: A higher credit score indicates good creditworthiness and increases the chances of loan approval. Lenders typically prefer applicants with a credit score of 700 and above.
  • Income and Employment Stability: Lenders assess the borrower's income, and employment stability to determine their ability to repay the loan. A steady income from a reliable source strengthens eligibility.
  • Debt-to-Income Ratio (DTI): Lenders evaluate the borrower's DTI, which is the ratio of monthly debt payments to monthly income. A lower DTI demonstrates better financial health and enhances eligibility.
  • Down Payment: The amount of down payment you can provide affects loan eligibility. A higher down payment reduces the loan-to-value ratio and shows a lower risk for the lender, and thus better interest rates for the borrower.
  • Loan Amount and Tenure: Typically, lower amounts and shorter tenures attract better interest rates. Lenders may have specific criteria regarding the maximum loan amount they offer based on income and property value as well.
  • Property Value and Type: The value and type of property being purchased or used as collateral can influence eligibility. Lenders assess the property's market value, location, age and condition, and legal compliance.
  • Existing or Past Financial Obligations: Lenders consider existing loans, such as personal or auto loans, as they affect the borrower's debt burden. Higher existing obligations may impact eligibility for a new loan. Similarly, for repeat home loan borrowers, their home loan background also affects eligibility.
  • Age and Employment History: Lenders may consider the borrower's age and employment history to evaluate stability and repayment capacity. A longer employment history and younger age can be favorable factors.
  • Documentation and Credit History: Providing accurate and complete documentation is essential for loan approval. Lenders verify the borrower's identity, income, and financial history through documents like bank statements, tax returns, and employment records.
  • Interest Rates and Policies: Lenders may have specific interest rate brackets and policies that affect loan eligibility. Some lenders may have stricter criteria, while others may be more flexible.

Finally, most lenders’ websites have a home loan eligibility checker which shows your eligibility based on the relevant data you input.

 

Frequently Asked Questions

1.What is the maximum debt-to-income ratio allowed for mortgage loan eligibility?
Ans: In general, a DTI ratio of 43% or lower is more favourable. It means your total monthly debt payments, including the proposed mortgage payment, should not exceed 43% of your gross monthly income.

2.Does a personal loan affect home loan eligibility?

Ans: The current outstanding amount of your personal loan, as well as the regularity of repayments, do affect your housing loan eligibility.

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