Home loans involve a substantial amount of money and therefore, when a borrower defaults on loan repayment, lenders suffer great financial loss. Therefore, lenders, these days, have very strict eligibility requirements for home loans. These home loan eligibility requirements help home loan lenders gauge an applicant’s repayment capacity and the risk involved in lending money to the borrower. The home loan eligibility criteria and how a borrower fares on them also help a lender decide the home loan principal and the interest rate to be offered to the borrower.
When a borrower has low home loan eligibility, lenders either reject their home loan applications or charge a higher rate of interest to make up for the risk involved. Before we get to know how a borrower can calculate their home loan eligibility, let us take a look at the factors that make home loan qualifying criteria.
Top 5 – Key Factors That Impact Your Home Loan EligibilityÂ
A major turning point in anyone’s life is getting a home loan, which is a crucial step toward becoming a homeowner. Receiving approval for a home loan, however, depends on a variety of factors that financial institutions carefully weigh; it is not totally driven by your desire to own a home. The terms and conditions you will be provided, as well as your eligibility for a home loan, are determined by these criteria.
In this article, we will explore the five key factors that play a pivotal use to determine your eligibility for a mortgage and how they affect your capacity to borrow. Anyone considering becoming a homeowner must be aware of these traits because they can significantly affect your ability to choose your ideal home.
Credit Score
An excellent credit score indicates excellent repayment capacity and therefore, enhances a borrower’s home loan eligibility. Homebuyers applying for a home loan must move ahead with their loan application only if their credit score is in the range of 750 to 900. If their credit score is below 750, they must improve it first and then apply for a home loan.
Income
A stable income reduces the chances of loan default. Therefore, lenders require borrowers to have a stable income. An unstable income reduces one’s home loan eligibility.
Employment Status
Just like a stable income increases one’s chances of loan approval, a stable job also translates into high home loan eligibility. If you are self-employed and your monthly income varies, you can convince your lender of your repayment capacity by disclosing additional sources of income, such as income from rent or fixed deposits, in your home loan application. You can also enhance your home loan eligibility by adding someone with a stable job as a co-applicant.
LTV Ratio
The LTV or loan-to-value ratio refers to the percentage of the property’s total value that has been sanctioned as a loan. High loan-to-value ratio loans carry higher risk for lenders and therefore, chances of loan approval are reduced in the case of high LTV ratio loans.
Further, since home loans are secured loans, the quality of the collateral matters too. High-quality collateral’s enhance home loan eligibility and vice versa.Â
Age
Mortgage eligibility is also affected by age. Because they have a longer period of employment ahead of them, younger borrowers are less likely to default on loan payments. As a result, younger borrowers are more likely to qualify for a home loan than those in their 40s or 50s.
An understanding of the factors that affect home loan eligibility is crucial to increasing one’s chances of loan approval and getting approved for a loan on good loan terms and conditions. Let us now understand what is a home loan eligibility calculator and how and why to use one.
What is a Home Loan Eligibility Calculator?
A home loan eligibility calculator is a handy online tool that helps home loan applicants figure out the loan amount they are eligible for. These calculators are easily available on the internet and using them requires one to have a very basic understanding of the internet. To use the calculator, simply follow these steps:
- Go to your lender’s website and search for the home loan eligibility calculator.
- Once you have access to the internet, select your employment type.
- During the next step, disclose your gross fixed monthly income. Some home loan eligibility calculators will also ask you to enter details of your other EMIs and other fixed monthly obligations.
- Next, enter other additional sources of income as well as the loan tenor that you wish to go for.
- As soon you enter these details and click on continue, the home loan eligibility calculator will give you the loan amount you are eligible for.
Please note that using most of the home loan eligibility calculators would require you to follow the steps illustrated above. However, some calculators may require you to disclose additional bits of information. Home loan applicants must use a home loan eligibility calculator to work out the loan amount they are eligible for. Applying for a loan amount that one qualifies for does not only increase one’s chances of getting approved for a loan but also availing of a home loan on low-interest rates and for a long repayment tenor.
Conclusion
In the end, obtaining home-ownership is about more than just fulfilling the legal requirements; it is also about setting yourself up for a better financial future. You can prepare for a successful and satisfying home ownership journey by carefully managing these factors and working for a solid financial planning. Understanding and maximizing these characteristics might give you the assurance you need to find your perfect home, which may be closer than you think.
