How To Qualify For a Home LoanThe first step to approaching a lender is to check one’s own pre-qualification for a home loan. Estimating the amount, one is willing to spend on a house as well as on a monthly basis, is the first step for a home loan application.
Post the same, the lender himself assesses the credit of the applicant and finalizes the loan amount as well as the terms prior to handing over the approval letter. Some of the critical qualifications required for obtaining a home loan are:
Income VisibilityThis is the first pre-requisite for a home loan qualification. Usually, income proofs of two years are required. It assesses how much home loan one can get on their salary or business on submission of relevant documents such as salary slips or business receipts. Income tax returns are also necessary.
Credit ScoreThe most critical tool for credit assessment by a lender is the utilization of CIBIL or credit scores. These scores have a direct correlation to the loan amount through the home loan eligibility calculator. The home loan eligibility calculator considers the Loan to Value (LTV) to decide the quantum. A higher credit score provides a higher LTV to the applicant. Ideally, a good credit score, which is above 750, also allows the applicant to negotiate on terms of interest rate and repayment terms.
VerificationNot only are salaries slips a requirement for home loans; lenders also undertake verification and reference checks as a risk counter-measure. Positive feedback in terms of confirmation of salary and vintage will determine how much home loan can get on their salary. Business checks can also be done through physical field verification and neighbor checks.
Document ChecklistLenders may ask for other documents to further check the eligibility of an applicant, such as proof of assets, bank statements, investment details, etc. This helps to determine if one can pay the down payment without any financial burden. Home Loan down payments are usually 20% of the house; therefore, sufficient funds to meet the same are highly critical.
Ideally, as per thumb-rule; 30 times of the net income is how much home loan one can get on their salary. However, this ratio may vary depending on the assessment and requirement. Lenders aim to structure the home loan in such a way that the monthly payments do not exceed 28-44% of the salary or net income. This may, however, go even beyond 44% for a person having a very favorable credit score or repayment track record.
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The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
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