Wednesday, 2 January 2013

How to increase your Home Loan Eligibility

How to increase your Home Loan Eligibility

Home loans are the most easily accessible financial products to buy your dream home. To understand how to better your eligibility to apply for a home loan, make a simple self-assessment. Here is how banks do it.

The main factor banks will consider is “proof” that shows that the borrower is capable of repaying the loan on time. For this, they will look into your income documents, personal credit history, current assets and liabilities, education, experience etc.
Old generation banks and co-operative banks to certain extent rely upon existing relationship or the previous experience with a client. A common pattern they follow is the sanctioning of a loan amount which will be a fixed multiple of the annual income. However, the new generation banks strictly follow their parameters.
The loan eligibility is usually calculated by applying Fixed Obligations to Income Ratio (FOIR). Most banks restrict FOIR to a maximum 45-50 per cent of monthly income.
That means, considering that one needs around 45- 50 per cent of his income for his personal expenses, all fixed obligations including the home loan applied for, should be restricted to a maximum 45-50 per cent of his gross monthly income. The loan amount is sanctioned can be calculated as in the box above.
Loan To Value is also a factor in eligibility calculation. Banks finance up to around 80 per cent of the property value as evaluated by the bank’s evaluator.
For those who have not yet decided on the property, there is an option to sanction an in-principle amount, which helps to know the amount a bank would be able to give out.
To increase your loan eligibility the following can be considered:
Clubbing income- Income of your spouse also can be considered if applied jointly.
Increasing Tenure- When EMIs are high, eligibility will become less. The more the tenure is, less the EMI will be. So, opt for a higher tenure. Usually banks offer a maximum of 20-30 years tenure.
Additional Income -Your consistent additional incomes like rental income qualify. Expected rental income from the property purchasing, performance linked pay can be considered to enhance your loan eligibility.
Step-up loans- A step-up loan is a loan wherein an individual pays a lower EMI during the initial years and the same is enhanced periodically on conditions put by the banks. This is made on considering the individual’s expected future salary hikes.
Pre-closure of existing loans- Outstanding loans like car loans or personal loans may reduce one’s loan eligibility. As per norms, only existing loans with over 12 unpaid instalments are taken into account while computing home loan eligibility. So, prepaying the existing loans in full or part will help.
Employer-Bank relationship- A lesser interest rate will naturally increase your eligibility. Check with the banks if there are any schemes running with your employer. Banks usually categorize companies into A, B, C based on company profiles and run different schemes like special interest rates, processing fee waiver etc. People working in MNCs are benefited out of this usually.
 Disclaimer - All information in this article is sourced from various websites. This article is compiled by team at Moneyfinder and any content is not owned by us. This information is true as on 02nd January 2013.


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