There are various factors that determine whether you will get a home loan or not. Consequently, it is advisable to know your home loan eligibility in advance, so that you can plan the purchase of your property, accordingly.
Your credit score/report
The most common reason for the rejection of a home loan application, is a bad credit score. As a first step towards processing any credit facility, lenders will obtain your credit score and credit report from any credit information bureau, like CIBIL. If you have defaulted in the repayment of your credit card bill or any other loan, the default is reported by the lender to such credit information bureaus.
Your credit score may also be adversely affected, if you have made a settlement with the lender vis-à-vis an outstanding loan amount. A similar situation may arise, in the case of dues on a credit card, where the lender has accumulated interest on the initial outstanding amount and subsequently agrees to reduce or remove the interest component included in the total outstanding, as a settlement deal to recover the amount due.
In such cases, the lender writes-off such unrecovered amount in its books and reports the same. The nomenclature ‘write-off’ has a negative connotation and this may discourage the new lender from sanctioning your loan.
Not all the cases, where the lender agrees to forego any amount due to it, are treated as write-offs though. In cases of genuine mistakes on the part of the lender, the outstanding amount is waived and the lender is supposed to report such remissions as waivers and not as write-offs.
In case the lender has reported a waiver as a write-off, you need to ensure that the lender rectifies such errors. For example, this may happen if a credit card, with fees applicable on it, was sent to you even though you may not have applied for it. In such situations, the credit card issuing company has to forgo the amount, if the person to whom such a card is issued, refuses to pay. In most cases, the lender will report remissions of such small amounts as write-offs. Although the amounts involved may be small, the prospective lender may reject your home loan application.
Lenders generally do not grant home loans, to salaried individuals who have retired and to self-employed people who have completed 65 years of age, even if adequate security is provided, in the form of other immovable property. The reason for this, is that the lender is interested in getting his home loan serviced each month and is not so interested in the value of the property that is mortgaged. So, unless you have a sufficient and regular flow of income, you will not be able to get a home loan.
Lenders generally, are not willing to give home loans to people who have not completed a certain minimum number of years in employment or in business. Lenders do so, to satisfy themselves about the consistency and quantum of the applicant’s income flow. However, a prior earning history is not a strict requirement. Lenders do consider the home loan application of professionally qualified persons favourably, even if they do not have much of an earning history. The same applies to people employed in permanent posts in government departments.
(The author is a taxation and home finance expert, with 35 years’ experience)