What is the difference between the Zamindaars of yesteryears and the banks/NBFCs (Non-Banking Financial Companies) of today? The former had no way of finding out your loan repayment capacity but the latter does. And that is the single highest priority for a bank. No surprises here! At times, there is collateral also involved, in case the applicant turns out to be a defaulter. For most banks, the process of documentation and background check is extremely thorough.
Here, we list down the factors that affect their decision of granting you the loan and also, how much of it.
you know you have a credit score?
A credit score is a 3-digit number calculated on the basis of your past dealings with any kind of debt and it indicates your ability to repay a loan. The score is calculated by credit agencies like CIBIL (Credit Information Bureau (India) Ltd) and you can learn more about how the score is calculated here. Apart from CIBIL, there are other agencies as well that indulge in credit score assessment. Needless to say, a higher credit score shall work in your favour. It gets affected by your EMI payment history, negotiated discounts, credit card payment delays etc. Usually, a score that is between 700 and 750 is considered fair and above 750 is considered to be very favourable. You can check your CIBIL score here.
How much do you earn?
This is the only situation perhaps, where
you would not feel uncomfortable answering this question. Higher your
disposable income, the higher shall be the loan amount you qualify for. All
your expenses together should ideally not be more than 40-50% of your monthly
income. If they are, that might potentially reduce the loan repayment capacity.
Also, the other factor that plays a part is the stability of your job. A bigger
and more stable company is favoured while a smaller, unestablished one might
is your debt to income ratio (DTI)?
If you have applied for a home loan, the
banks want to know what are the other liabilities like car loans, credit card
payments etc. being paid from the same amount of salary. DTI ratio is
calculated by dividing your total liabilities by your net monthly income. For
example, if you have a monthly out-go of Rs 50,000 out of your net income of Rs
80,000; your DTI is 62.5% which is very high by the usual standards. Most banks
follow a basic threshold limit of 40% while evaluating.
old are you?
Common sense says that a person that still has a long way to go for retirement will have better repayment capability than someone who shall retire soon. A typical home loan takes about preferably 20-25 years to get repaid, now assuming you are 30 when you apply for the loan, you will only be able to pay it off completely very close to your retirement. With someone who is already in his/her 50s/60s, the banks might get a bit conservative and the longer tenures will also not be allowed. However, you do have an option of including your children’s incomes while applying or co-owning the house with them. Also, the step-down repayment option might enhance your eligibility. This option allows you to pay higher EMIs to begin with and the EMIs depreciate with time.
All said and done, you’d want to be very careful that none of these taints your efforts towards creating a perfect home. And we, at Provident Housing, understand that. Our home-loan team assists you at every step of the house purchase and gets you in touch with a suitable banking partner.
Moreover, we organize Home Habbas every year to bring the banks and customers on the same platform along with us. Some of our ready to move in projects in the most sought-after locations at Bangalore are Provident Parkwoods, #TooGoodHomes and Provident Sunworth.
You can read the blog post on: ‘Avail income tax benefits on your home loan.’ here.
Happy Home Buying!
The data and information provided in this article are reliable but only
suggestive and informative. This is meant to be consumed for general
information purpose only. Provident Housing cannot be held liable for any discrepancy
in the information provided in the above blog article.