July 12th, 2018

How to improve your loan eligibility

It is one thing to dream of owning a home and quite another to actually buy one, since there are liabilities attached to it, especially if you are taking a home loan. It means committing a part of your monthly salary to repay the loan over several years. Once you decide that you can afford a loan, you have to look at other aspects, such as the loan amount you are eligible for, customer service efficiency of the financial institution, and fixed or floating home rate options.

Let’s take a closer look at eligibility, which can be an obstacle to obtaining a higher loan.

Loan eligibility is the maximum amount of loan that you can hope to get based on your current income and repayment capacity. This also takes into account on size of the loan, tenure and interest rate. Financial institutions generally advice to limit the EMI up to 60 percent of the total take home pay, assuming that are there are no other ongoing liabilities. This helps the buyer to have enough disposal income for his or her monthly expenses.

Eligibility is also determined by other factors such as age, prior loans, credit history, repayment track record, existing loan obligations and retirement age.

While the loan eligibility can be a rigid criterion, there are ways in which you can improve it.

Applying jointly

Eligibility improves substantially if you apply for a loan jointly with immediate family members who are earning, such as spouse, son or daughter. This is because a joint applicant’s income is taken into account while determining eligibility.

Closing other loans

If you have other loans, you may consider closing the short term ones through pre-payment, so that you are eligible for a higher home loan. Since buying a home is a one-time transaction, it makes sense not to compromise for want of desired loan amount. Also, you can go for a longer loan tenure, say up to 25 years, to increase the eligibility and make pre-payments as and when surplus funds are available.

Clear your dues for a higher Credit Score

Also, if you have any pending payments or defaults which may have impacted your credit score adversely, it is strictly advisable to clear those and then apply for a home loan. Credit score plays a critical role in gauging the repayment capacity and prudence of payment by the buyer.

Thus, while eligibility is an important factor in a home loan, you need not let it prevent you from buying a bigger and better home for your family.

Author : Shaji Varghese
(The author is Executive Director and Business Head, PNB Housing Finance Ltd)

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