We all aspire to buy at least one home during the course of our lives. But given the huge investment involved in the purchase only a few can afford to pay for it upfront. If one thinks of accumulating the money it may take many years to achieve the goal. Home loans help you in making this investment and realize your dream of owning a house. It is important to understand the factors that play a crucial role in the home Loan approval process.
The first thing that the lending institutions check is whether all the documents are in order. Make sure you submit all the required paperwork like ID proof, residence proof, PAN card, income statements, Bank statements, tax return documents etc. in order to avoid any unnecessary delays or rejection of your application. Banks particularly scrutinize the account statements to evaluate your financial habits and see whether you have sufficient balances to pay for the home loan EMIs. They also have a checklist of the documents relating to the property that you are looking to buy, to verify that it has a clear title and all the required clearances from the government. Keep all the copies ready along with the originals.
Income and current debt levels
The level of your income will influence the amount of loan you will be approved for. Your EMI amount should not exceed 40-45% of your monthly income. More than the income level it is the debt to income ratio that is the main criteria that affects the home loan approval process. All your existing debts including your Credit card balances will be weighed against your monthly income from all sources. Banks check the extent to which the debts are already eating up the income. If you do not have much left over after paying for your existing debts, it can affect your loan eligibility. If such is the case, you may consider applying for a joint loan with your working spouse so that both your incomes are clubbed to check the eligibility.
Credit history and credit score
You may have a very high income level to justify your ability to repay the loan but if you do not have a credit history then banks will be wary of lending you money. They need to see a proof of your past repayment patterns in order to gain confidence over your financial behaviour. So if you do not have any liabilities yet, then start by getting a credit card. Make prompt payments and build your credit history before applying for a home loan.
If you had debts earlier then lenders will check your CIBIL score to gauge how responsible you were with their payments. They consider it as a reflection of your future credit behaviour. A person with clean financial habit will have a high credit score and can easily secure a loan. But a person with repayment defaults may not have a good score to qualify for a home loan. Hence it is crucial to improve and maintain a good score if you wish to smoothly sail through the home loan approval process.
Banks like to see stability and longevity in your current job. Frequent job hopping or gaps in employment raises concerns over the ability to repay the loan. Hence it is better if you stick around with a company for at least 2 years when you wish to apply for a loan. The financial strength of the company in which one is working is also considered while evaluating the application. Salaried individuals especially those in government service or in blue chip companies are considered safe as their salary is fixed and they have greater job security than self-employed people or those on contractual jobs.
Another factor that the lenders consider before disbursing the loan is the age of the applicant. Younger a person higher will be his eligibility. A person in his thirties is considered financially stable as he has a number of working years left to repay the loan. A person in his fifties on the other hand has only 5-10 years more before he gets retired.
Once you know about the factors that affect your chances of home loan approval, you can take appropriate measure to ensure that you score well on them. Inculcate financial discipline, improve your credit score and ensure a stable job and income stream. This will surely ensure that you get easy access to home loans in future.
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