Besides checking an applicant’s eligibility for a home loan, lenders also have certain criteria to ascertain the quantum of home loan that they can grant to the person.
Income of the applicant
An applicant’s income, is the starting point for determining his home loan eligibility. Generally, lenders consider 40% to 50% of your monthly income as available towards servicing the loan. The proportion of income considered for servicing the loan increases, as the income level rises. So, for a person in a higher income slab, the lender may even consider a higher percentage of his monthly income.
However, the percentage that is considered for servicing the home loan, may vary from lender to lender. Moreover, the criteria adopted for salaried persons, is different from that for self-employed borrowers. For self-employed professionals, like doctors, some lenders consider the gross receipts and not the taxable income, for the purpose of home loan eligibility.
Impact of existing loans
While computing your home loan eligibility, the lender will subtract the EMI on your existing loan, from the amount available for servicing the home loan. Consequently, your home loan eligibility will be based on this reduced amount. Therefore, if you have an existing loan, where the outstanding amount is small, it makes sense for you to prepay the outstanding loan, as this could enhance your home loan eligibility substantially. The incremental home loan eligibility, will be much higher than the outstanding amount on the existing loan.
Age and remaining years of service of applicant
Home loans are generally available for tenures of up to 20 years. However, your age and remaining years of service, could restrict your loan amount. For example, if your age is more than 40 years and your remaining years of service is less than 20 years, your loan eligibility shall accordingly get reduced. For a salaried person, a retirement age of 60 years is taken into account, while for self-employed borrowers, the lenders consider a retirement age of 65 years, for determining the home loan’s tenure.
Availability of co-borrowers
The amount of home loan that you are eligible for will increase, if you are able to add someone, who is acceptable to the lender, as a co-borrower to the home loan application. The lender will pool the income of all the co-borrowers, to determine the amount available for paying the EMIs. Please note that all the joint owners of the property, have to be included as co-borrowers, irrespective of whether they have any separate income. However, a person can also become a co-borrower, even if he is not a co-owner of the property.
Tenure of the home loan
Your home loan eligibility is directly linked to the tenure that you opt for. With the same surplus income, a longer home loan tenure will give you a higher home loan eligibility. As there is no prepayment penalty on home loans and with lenders mostly offering loans under the floating rate of interest, it makes sense for you to choose a longer home loan tenure, so as to have higher eligibility and better flexibility. You can always prepay your home loan partly or fully at any time, in case you have surplus funds.
(The author is a tax and investment expert, with 35 years’ experience)