How banks determine home loan eligibility
May 16, 2014
Source : The Times of India


DELHI: Buying a home is an important personal finance decision. This not only compels us to use our savings for paying down payment for homeloan, it also makes changes to our lifestyle to accommodate the new EMI payment for the home loan.

Eligibility of home loan, that is the maximum amount of loan an individual can avail, depends on various factors. Here they go:


The most important factor which determines the loan eligibility of an individual is the assurance to the banks that the individual can repay the loan amount.

Credit Information Bureau India Limited (CIBIL), founded in 2000, assesses the credit worthiness of an individual by collecting information about his loans and credit card payments from all Indian banks on a monthly basis.

CIBIL tracks the financial transactions ranging from how well one maintains the bank account, credit cards, and existing loans to any lapses in the form of skipped credit card payments or cheque bounces.

“After analysing these details, CIBIL provides a credit score on a scale of 300 to 900. Individuals with a CIBIL score greater than 700 are more likely to get a home loan at competitive rates. All the home loan lenders approach CIBIL for this score whenever one applies for a home loan,” says Nitin Vyakaranam, CEO of a leading online financial planning firm.

Income criteria

From the perspective of repayment of home loan, banks or non-banking financial companies (NBFCs), consider various factors ranging from age, type of employment, salary structure and existing loan payments.

Age of the individual:

Age of the individual determines the remaining earning potential. This plays an important role in determining the loan tenure. Majority of the loan providers have an upper limit on the eligibility age. Since the loan eligibility is also dependent on the loan tenure, individuals who have an option to increase loan tenure from say 15 to 20 years can increase their loan eligibility as well.

Type of Employment:

Employment history and the current employer of an individual also play an important role in determining the loan eligibility of the individual. From the perspective of the amount that a person can avail for home loans, banks determine the eligibility based on income as per the tax returns. Salaried professionals are generally considered to have higher repayment ability than the self-employed individuals.

For salaried professionals, banks lend up to sixty times the net monthly salary of an individual.

However, when assessing the income criteria, banks usually do not consider some heads of the salary slip. They only consider the income heads which can be used to repay a loan. For instance, heads of a salary slip like medical allowances and LTA are not considered when computing the eligibility amount for a loan applicant.

“If we have any existing loans, then the EMI of those loans are deducted from the total amount otherwise eligible. These are some of the reasons why we generally see a difference in the eligibility amount quoted in the website and the actual amount realized once the application is accepted,” Vyakaranam says.

Co-applicant of home loan: If we wish to avail higher amount as home loan than what is being offered by banks, we can include the names of our spouse or parents as co-applicant.

Co-applicants’ income adds value to home loan application and helps in increasing the overall loan eligibility amount. Banks favour such applications as the loan repayment commitment is shared by both the applicants, thus reducing their own risk. Co-applicants’ status also helps in tax planning as the tax benefit interest payment under Section 24 of the Income Tax Act, 1961, can be taken by both the individuals.

Time taken for approval

From the time all the required documents along with the home loan application is submitted, the time taken for the approval of loan varies from 3-15 business days and differs from bank to bank.

The documents generally required along with the application form are:

-Identity proof

-Address proof

-Income proof (Tax returns, employment details, bank statements)

-Proof of educational qualifications

-Age proof

-Details about the property

Financial institutions validate the information provided by home-loan applicants through their independent investigation and once they are satisfied, they approve the loan. In case they reject an application, they would normally give the reasons on request.

Latest Realty News

Rs 8 crore road link for Manesar Phase V
May 13, 2014
DELHI: The newest industrial pocket of IMT Manesar – Phase V – is now being readied for fresh development activity lined up for the coming years. The industry authority, HSIIDC, has recently put together a road layout plan for this newly acquired development land, which will connect parts of Phase V with the rest of the township.
Integrated townships come to Meerut
May 13, 2014
DELHI: Meerut’s realty market has shaped up as an ideal destination for affordable-range housing with prices in other NCR regions like Noida, Gurgaon, and Ghaziabad slipping out of the reach of the average middle-class homebuyer.
Ansal Properties to invest Rs 130 crore on SEZ development in Greater Noida
May 13, 2014
DELHI: Realty firm Ansal Properties and InfrastructureBSE 3.72 % has revived its plan to develop a 75-acre IT special economic zone (SEZ) in Greater Noida and will invest about Rs 130 crore over the next three years on construction.
Prices of commercial property like offices and shops fall 30% from peak on oversupply, weak demand
May 13, 2014
DELHI: Prices of commercial property, which includes offices space as well as shops in malls and shopping complexes, have fallen 30% from their peak values in 2008 because of a glut in supply and weak demand over the past few years.
Sahara may exit finance business by December 2017
May 12, 2014
DELHI: Faced with a tight cash flow, Sahara is contemplating to exit its finance business by December 2017 and focus on retail, real estate, life insurance and mutual fund, its chief Subroto Roy has said in a letter to Prime Minister Manmohan Singh.
Ultra-luxe NCR apartments a rage with expats, corporate travellers
May 12, 2014
DELHI: If you have recently arrived in Gurgaon, Noida or Delhi for work, and don’t like the idea of putting up at a hotel, you need not live out of a suitcase. An increasing number of business travellers coming down to this neck of the woods for a few days, weeks, months or years are opting for a more homely experience. Thanks to a whole new crop of plush apartments in NCR that are being converted into beautiful homes, visitors are now choosing to opt for full-service apartments that are being p
Noida: Residential units can be built on institutional plots
May 12, 2014
DELHI: Finding no takers for developing institutional properties in the city, Noida Authority has decided to allow such plot owners to sell a portion of the land for residential use. This decision will help offer more housing projects in the region.
Delhi picks trouble spots in Haryana’s 2021 plans
May 12, 2014
DELHI: The Delhi government has raised several environmental concerns about the draft regional plan 2021 and sub-regional plan for Haryana 2021. One of the issues is high emission of sulphur dioxide (SO2) and oxides of nitrogen (NO2) in parts of Haryana in NCR with not enough air quality monitoring stations in the region. Water sharing through Munak Canal and land use change in Aravalis are other contentious areas.
Only builders, banks gain when you take loan to invest in realty
May 11, 2014
MUMBAI: An acquaintance recently told me that his colleague had bought a flat for Rs 40 lakh and is selling it at Rs 80 lakh. He had made a down payment of only Rs 8 lakh at the time of buying the flat. According to him, real estate was the best investment option. This is something we hear almost every second day as financial planners.
Supertech to invest Rs 1,000 cr on housing project in Gurgaon
May 11, 2014
DELHI: Realty firm Supertech today said it will invest Rs 1,000 crore over the next four years to develop a new project in Gurgaon.

Latest Realty News Of State

Realty Talk's