Purchasing a property is a long-term financial commitment, especially among married couples. While the affordability on home loans has increased over the years, owing to the increase in disposable income and declining rate of interest, you still need to crack the math of home loan eligibility.
Home loan eligibility is a vital metric that lenders gauge to analyze the maximum loan amount to be offered to a potential borrower. But let's begin with understanding what is home loan eligibility.
What is home loan eligibility?
This is defined as the maximum capital a borrower can get as a loan. It is based on several factors including age, source of income, repayment capacity and credit score. While a borrower can check the home loan eligibility on the lender's website, there are various tips to increase the eligibility by several notches. What are they? Let's find out.
Tip #1: Have a Good Credit Score
Lenders take a close look at your credit score to judge your creditworthiness. Credit score, also known as CIBIL score, is a three-digit score ranging from 300 to 900. A high credit score establishes you as a responsible borrower and expedites the application process. For a good credit score (above 750), make sure to:
● Pay existing dues, including that of credit cards, on time
● Keep debt-to-income ratio low
Also Read: Why is Credit Score Important for Loans?
Also, keep a close eye on your credit history report and rectify errors in it, if any. With a good credit score, there are chances of availing the home loan at a competitive rate of interest. Building a robust credit score requires judicious financial habits that can help you plan your finances better while applying for a home loan.
A low rate of interest brings down the EMI and ensures your finances don't get stretched during the loan tenure. The table shows the difference even a 1% rate of interest can make to your home loan EMIs and interest payable.
Loan Amount in INR
Rate of Interest
Loan EMI in INR
Total Interest Payable in INR
Total Payment (Principal+Interest) in INR
As evident, a 1% dip in rate of interest can help you save close to INR 5 lakhs in interest. Lower EMIs facilitate easy repayment.
Tip #2: Opt for a Joint Home Loan
Opting for a joint home loan can not only give you tax benefits but also significantly enhance home loan eligibility. If you have multiple earning members in your family, you can apply for a joint home loan. The best options include applying along with your spouse or parents.
This move not only enhances eligibility but also comes in handy during repayment as the EMI is divided between the co-borrowers. Also, both co-borrowers are eligible for tax benefits when they opt for a joint home loan.
At the same time when you apply for a joint home loan as co-borrowers, arranging the down payment amount becomes easy. Both of you can split the contribution and make a higher down payment.
Based on your income levels, partners can share the amount among themselves based on their convenience. This gives you the flexibility to address other essential needs hassle-free, without putting an unnecessary burden.
Additionally, when you apply for a joint home loan, the lender evaluates your combined income and credit score as a single application, which increases its weightage by several notches.
Tip #3: Make a Higher Down Payment
No lender will finance the entire purchase value of your home. Most lenders approve 80 to 85% of the property’s value as a loan. You need to pay the remaining amount as down payment. When you make a higher down payment, it significantly increases your home loan eligibility.
Also, higher the down payment, lower is the home loan amount. This brings down the EMI and helps you keep a tight lid on the interest payout.
Accumulating a higher down payment amount makes you more conscious of your finances and investments. It forces you to cut down unnecessary expenses and you make an honest effort to save. Cutting discretionary expenses also adds to your income and enhances your home loan eligibility.
Tip #4: Declare Additional Source of Income
Your home loan eligibility gets a significant boost when you declare additional sources of income. It adds to your financial muscle and helps avail a higher loan amount. So, if you have extra sources of income such as rental income, part-time business, etc., declare them in your application.
Also, declaring additional income sources underline your higher repayment capacity, which helps in the loan application process. It also improves your debt-to-income ratio that aids in achieving higher eligibility.
Additionally, extra sources of income come in handy during situations like COVID-19, when there’s a break in active income. You have a ready-made backup plan to ensure no EMIs are missed, even if your primary income takes a hit. It also helps you accumulate a higher down payment amount and subsequently save on EMIs and interest.
Tip #5: Avoid Frequent Job Changes
If you are a salaried individual, changing your job frequently can negatively impact your home loan eligibility and the loan amount. When you stick to one organization for a long period, it means a stable source of income.
On the other hand, changing your jobs frequently paints a negative picture in the mind of lenders and they become skeptical about your repayment capabilities. So, make sure to stick to one firm for a decent period to boost your home loan eligibility.
Sticking to a single organization for a long time makes you eligible for various benefits such as gratuity. You can use a portion of the amount received for down payment. Periodic appraisals increase your income, enhance your home loan eligibility, and help you repay the loan with ease.
Lastly, applying for a home loan shouldn't be a rushed exercise. Use online Home Loan eligibility calculators to compute your eligibility and go ahead after due diligence. After you check home loan eligibility, take stock of your finances and search for reputed and credible lenders.
You can also use Home Loan EMI calculator to figure out monthly EMIs and plan your budget accordingly.