How do banks determine Home Loan Eligibility? Many factors have an impact on the determination of your Home Loan eligibility. Some of them are as follows:
- Your income
- Repaying capacity
- Credit history and score
- Type of property
- Type of employment, and so on
Impact of Property Type on Home Loan Eligibility
What has the type of Property got to do with the Home Loan eligibility? There is a profound connection. Let us see how it impacts your loan.
When you apply for a Home Loan from any of the banks in India, banks search for the records in the Sub Registrar’s Office (SRO) to verify the genuineness of the title to the property. The primary objective behind doing so is to ensure that you have a right to acquire the property in your name. Once you acquire the property in your name, you can create an equitable mortgage in the bank’s favour. The creation of the charge enables the bank to take possession of the property in case you default. At the same time, the registration of the charge in bank’s favour prevents you from dealing with the property in a manner detrimental to the bank’s interests.
Therefore, the primary aim of searching at the SRO’s office is to ensure the smooth creation of equitable mortgage. There are many types of property where the purchaser might not get a clear and marketable title to the property. Under such circumstances, the purchaser will not be able to create the equitable mortgage in the bank’s favour. Hence, the bank will not have access to the security. It will naturally impact your Home Loan. Let us see some examples of such property.
Property situated in Lal Dora Land in Delhi and surrounding areas
Lal Dora land is an extension of the village habitation that the villagers can use for tending to livestock and other ancillary purposes. Such lands are exempt from municipal rules and regulations. Hence, it is not possible for anyone to create a mortgage on Lal Dora land. Therefore, banks are reluctant to finance properties built on Lal Dora land.
Properties built on Puramboke land in Tamil Nadu (Biladakla Land in parts of Andhra Pradesh)
The Puramboke land belongs to the Government. The literal meaning of the word ‘Puramboke’ is “Land outside the revenue records of the village Panchayat and municipalities.” No one can construct houses on such land. If they do so, they do get a clear and marketable title. In the absence of a clear title, such persons will not be able to create an equitable mortgage in bank’s favour. Hence, banks do not finance such properties. It will show in the search records that the land is Puramboke land.
Purchasing ancestral property
Purchasing ancestral property should not be a problem. However, one should ensure that the person selling the property has the right to do so. As per the Hindu Succession Act, the grandsons have an ownership right over the property acquired by their grandfather. The father does not have any right to sell or transfer the land if he has not contributed towards the purchase of the land/property in any way. Under such circumstances, the father does not have any right to demolish the ancestral property and construct a new house with the help of bank finance. The father has to obtain the NOC from the successors before dealing with the property in any manner. Banks are thus reluctant to finance such properties because they do not get a clear and marketable title to the property.
Purchasing SRA Flats in cities like Mumbai
No one can purchase the Slum Rehabilitation Authority (SRA) flats in Mumbai for 10 years from the date of construction. The Government has constructed these properties for the rehabilitation of slum dwellers. The owners cannot deal with these properties in any manner. Hence, banks do not finance such properties because the creation of equitable mortgage will not be possible.
Property more than 30 years old
Some banks have types of Home Loan in India that do not allow you to purchase property or flats more than 30 years old. The law does not prohibit such purchases, but the bank’s internal policy does. Hence, such properties can also adversely affect the home loan eligibility.
What is the Takeaway from This Discussion?
Banks do not finance properties where the creation of equitable mortgage is not possible. As banks do not get absolute rights over the property, they will not be in a position to enforce the security in the case of default on the part of the borrower.
Also Read: Home Loan Overdraft Facility: Introduction and Benefits
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