Here’s Your Guide to Check Home Loan Eligibility
You are living in a rented home for the past two years. You have the capacity to pay a five-figure rent amount. Have you ever thought about applying for a home loan and paying instalments instead of rent? If the answer is yes, you should be checking out Your Home Loan Eligibility.
Who is Eligible for a Home Loan?
Anybody with a regular source of income is eligible for a Home Loan. Regular income does not just mean a regular pay check. Self-employed and professionals may have a number of other sources of income. Some individuals also get regular rental income credited monthly in the bank account, and valid source of income. Here is what you need:
- Income Tax return for the past two years
- Bank Statement (last one year) showing proof of regular income (from any source)
- Sanction letter(s) of all/ any loans being paid currently.
What are Some Factors that Impact Home Loan Eligibility?
Showing proof of regular income is the principal factor that determines Home Loan eligibility, however, here are four additional factors to consider:
1. Employment/Business Status
• Salaried Employees – People working in the private or public sector, earning a salary on a regular basis can provide evidence of their income by way of salary slips and a bank statement. Employer should be a private limited company or a limited company.
• Non-Salaried Employees –Some people have other sources of income like commissions, professional fees, compensations for services provided, rental income, and so forth. You should be able to convince the Home Loan provider that you have continuity of income. You can furnish copies of invoices or bills raised on your customers as valid proof. You can substantiate the invoices by linking it with the credits in your bank account.
• Self-Employed/ Business Owners – In case you own a business, you would need to show the Profit and Loss and Balance Sheet statements for the past two years along with your income tax returns.
2. Other Regular Liabilities: Factors that Govern Your Repaying Capacity
This applies to all categories of Home Loan applicants. It is natural for an individual to have other liabilities like an auto or personal loan, credit card dues, employee PF loans, taxes and so on. Regular obligations like these impact the net disposable income available to an individual. This brings us to the concept of net income or take-home pay.
Lenders have specific rules for determining take-home pay. As a thumb rule, the take-home pay should not be less than:
- Salaried Employees: 40% of gross income
- Self-Employed: 50% for individuals in other categories
It’s worth noting, this percentage is after considering your prospective home loan repayment. This can restrict your Home Loan eligibility.
A Quick Example Below:
|Gross Income per Month||1,20,000||1,20,000|
|Other Regular Liabilities||20,000||20,000|
|Amount Available for a Home Loan Installment||28,000||28,000|
|Net Take-Home pay (40% or 50% of Gross Income)||48,000||60,000|
3. Your Credit history – Credit Score
You will hear the word, ‘Credit Score’ frequently when you apply for a Home Loan. The Credit Score is a report generated by credit bureaus like CIBIL that indicate your credit standing.
A lot of factors go into determining your Credit Score (a few listed below):
a. Repayment history
b. Total existing debt balance (loans outstanding balance)
c. Frequency of loan applications
The scoring starts at 300 and goes up to 900. The higher your Credit Score – the better! Anything above 650 is considered fair for checking out your Home Loan eligibility.
4. Value of Property
The Home Loan amount depends on the value of the house. The amount borrowed ranges between 75% to 90%. Many banks finance up to 90% of the purchase price.
Remember that your bank finances the lower of the following,
a. 75% to 90% of the cost of your home OR
b. Eligibility depending on your Net Take-Home Pay (discussed earlier)
In addition to the above factors, banks will also evaluate your age, the number of dependents in your family, the property title, and its market value.
Want to understand your Home Loan eligibility? Call mymoneymantra’s Mortgage Specialists at our toll-free number: 18001034004
mymoneymantra is India’s leading online lending marketplace, offering the best financial products from over 60 banks and NBFCs (Non-Banking Financial Companies).