How do banks determine your home loan eligibility?

Since the year 2022 is possibly the best time to buy a house with the help of housing finance, as interest rates are at a 10-year-low level, it becomes absolutely necessary to know how banks decide whether or not they would grant you that home loan.

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In a webinar on ‘How banks determine your home loan eligibility’, organised by Housing.com, we tried to find answers to many questions that borrowers might have, with respect to his/her home loan eligibility.

(Watch the webinar on our Facebook page)

The panelists at the webinar included Sanjay Garyali (business head – housing finance and emerging market mortgages, Kotak Mahindra Bank) and Rajan Sood (business head – PropTiger.com). The session was moderated by Sunita Mishra (manager, content marketing) and co-branded by Kotak Mahindra Bank.

What are the parameters banks use to decide your home loan?

“Banks are in the business of lending money and this is why they first try to ascertain if the borrower will be able to repay the money within a pre-decided time frame. To arrive at that conclusion, banks look at several factors like property value, salary of the applicant and his CIBIL score,” said Sanjay Garyali, business head – housing finance and emerging markets mortgages, Kotak Mahindra Bank.

Must you get a co-applicant in your home loan request?

Banks often nudge borrowers to get a co-applicant to improve their home loan eligibility. But is it really necessary to do so?

“While the borrower is free to decide whether or not he wants to have a co-applicant or decide to go solo in his home loan application, it is actually helpful for a borrower to have a co-applicant for several reasons. Since there are two parties involved in the borrowing, the burden is shared. In case of an unfortunate event, where one borrower is not able to repay the loan, the other would step up,” said Rajan Sood, business head, PropTiger.com.

See also: Best bank for home loan

Do banks give preference to salaried employees, as compared to self-employed individuals, while determining home loan eligibility?

“While salaried individuals are generally considered a comparatively safer bet, as compared to self-employed individuals, banks basically look at the consistency of the income and future prospects of the individual when giving home loans. The assumption that they would prefer a salaried borrower against a self-employed borrower is not actually correct,” explained Sood.

How important is CIBIL score in deciding your loan eligibility?

“Your CIBIL score is like your financial character certificate. This is the document based on which the bank will decide how you would behave, if there were no outside factors to stop you from going haywire financially,” said Garyali and added that having a good credit score would have a direct bearing on the pricing of your home loan.

Banks typically offer their best interest rates to borrowers with a credit score of over 800.

What is the minimum credit score you need to have, to get a home loan?

You need to have at least 650 CIBIL score to be considered by a lender, Garyali explained.

See also: All about RBI guidelines for home loan

Does it impact your home loan eligibility if you are planning to switch jobs around the same time as you are planning to apply for a loan?

“It is a common tendency among millennials to quickly switch jobs in order to achieve career growth. However, if you are looking at the possibility of owning a property through a home loan, it would be better to stick with your current job for at least six months, as among other things, banks also judge the stability of the borrower,” said Sood.

“Even if your new job means your take-home salary is going to increase, the bank would factor in only your current salary while determining your loan eligibility, since the new salary has yet to kick in,” added Garyali.

Are there any quick fixes to improve your credit history?

Building a credit history is a long process, and there are absolutely no quick fixes to doing it. According to Gariyali, as well as Sood, it would take at least 18 months to get one’s financial records in order to build a strong credit history.

See also: All about CERSAI

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Sunita Mishra

An alumna of the Indian Institute of Mass Communication, Dhenkanal, Sunita Mishra brings over 16 years of expertise to the fields of legal matters, financial insights, and property market trends. Recognised for her ability to elucidate complex topics, her articles serve as a go-to resource for home buyers navigating intricate subjects. Through her extensive career, she has been associated with esteemed organisations like the Financial Express, Hindustan Times, Network18, All India Radio, and Business Standard.

In addition to her professional accomplishments, Sunita holds an MA degree in Sanskrit, with a specialisation in Indian Philosophy, from Delhi University. Outside of her work schedule, she likes to unwind by practising Yoga, and pursues her passion for travel.
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