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Home Loan

Home Loan ( H/L) Overview

Buying a home could be one of the biggest achievements of a person's life. In most cases, it takes

an entire lifespan to fulfil the dream of purchasing one's own home. Selecting the ideal property

involves a lot of research and planning. Arranging funds is probably the toughest and the

trickiest part of the process.

Most lenders get the property valued independently and provide loans based on their estimated

value. It is important to remember, however, that frequently their valuation is significantly lower

than the actual cost and hence the requirement of the borrowers goes up. Home loans in Indian

Banks are provided up to maximum of 80% (90% for loan amount below INR 20 lakhs) of the

value of the house. Home loans are repaid using Equated Monthly Installments (EMIs) spread

over a fixed tenure.

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Home loan can be for :-

Build up purchase

Repair renovation

Balance transfer from other bank

Home loan in the shape of OD ( in special cases)

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Home Loan Eligibility Criteria

Every bank has its own set of eligibility criteria so as to properly assess your repayment capacity.

The Repayment capacity per say is based on your monthly disposable income or surplus income,

(which is based on factors such as total monthly income / surplus less monthly expenses) and

other contributing factors such as your spouse’s income, assets, liabilities, stability of income

and so on.

The main concern from the bank’s perspective is to make sure that you can comfortably repay

the home loan on time. The higher your disposable monthly income, the higher the amount you

will be eligible for. A bank typically assumes that about 55-60 % of your monthly disposable

income is available for repayment of the home loan. There are exceptions to this however where

some banks calculate the income available for EMI payments based on an individual’s gross

income and not on the disposable income.

As always, the loan amount depends on the loan tenure and the interest rate. Banks generally fix

an upper age limit for home loan applicants.

Bank Home Loan Criteria

Different banks have different eligibility criteria, however, we can broadly classify them into the

following buckets:

Monthly Income – One of the most important considerations when a bank decides the maximum

loan amount it can disburse, is your monthly income (if you are a salaried individual. if you are a

self employed person, your yearly profit would identify your maximum loan amount)

The loan amount basically depends upon the net income of an individual and a bank usually

provides home loans up to 60 times of an individuals net income. For e.g. if a person take home

salary is Rs 30,000 he /she may be offered a home loan of around Rs 18 lacs. However, the

finality of this decision is based on a few other criteria.

Other EMI – If you have any previous loans or EMIs pending, a bank will always consider the

risk and the financial load you are taking on to decide to give you a home loan.

Available Income – The income that is left in your bank account after deductions of any EMIs is

a very important consideration for giving out a home loan. The Home Loan Eligibility Calculator

will be calculated after deduction of the EMI’s that you are paying monthly.

Property Attributes – If you are a home owner already, you should know that banks provide

upto 75% of your home property value as a loan amount. So for example, if your home or

property is worth 50 Lakhs, you can get upto 75% of that amount as the loan amount, which in

this case works upto 37.5 Lakhs. Here, based on your income and property value banks decide

your exact home loan eligibility.

Banks also have certain norms for the property before granting a loan. These are with respect to

the minimum area requirements for a flat which may be carpet area or built up area. The bank

also considers the age of the property in case of an existing property, the location of the property

and also the reputation of the builders constructing the property. Thorough analysis and

inspection of the property to check whether the title is clear or not is an additional check in

addition to things like ownership disputes and so on.

Credit History – The credit history of an individual plays an important role in deciding the

amount of the loan. Credit history is basically the credit report of an individual based on credit

information recorded by CIBIL through all your loan transactions. Based on your credit score, a

bank or any other financial institution decides whether an individual is eligible for a loan or not.

The credit history is generally affected by outstanding credit card payments and any unsecured

loans.

Age – Age plays a crucial role in determining your eligibility for a home loan. One has be atleast

21 years of age to apply for a home loan. The minimum age requirement may be different for

different lending institutions. The maximum age may vary from 58 to 70 years depending on the

income source of the individual. Age also determines the tenure and EMI of the loan. For e.g. if

an individual is 35 years of age and retires at 60 then his/her loan tenure will be 60-35=25 years

and the EMI will be calculated accordingly. The longer the tenure the lower will be the EMI’s.

However the longer the tenure, the costlier the loan is as one ends up paying more interest.

Co-applicant – In order to enhance the eligibility for having a loan one can have a co-applicant

such as a spouse or close nominated relative or friend. As a result of this the total eligible income

for having a home loan increases and thus as a result the loan eligibility becomes higher.

However banks permit only certain relationships to become the co-applicant.

As mentioned earlier, every bank has its own set of Eligibility Criteria. In case of NBFCs

customers can expect higher eligibility.

Documents Required for Home Loan

Every customer has to satisfy the Know Your Customer (KYC) norms stipulated by RBI. You

have to provide the documents relating to your KYC, employment, business, and income.

Identity Proof

1. PAN Card

2. Aadhar Card

3. Voter ID

4. Driving Licence

5. Passport

Address Proof

1. Registered Rent agreement

2. Aadhar Card

3. Driving License

4. Lease agreement

5. Passport

6. Latest Gas or electricity bill

Financial Documents - Employment or Business Proof

1. Salary slips for the last 6 months in case you are a salaried employee (In addition, you

can provide IT returns for the past 3 years along with Form 16)

2. IT returns for the past 3 years in case you are self-employed (Some banks accept 2 years

IT returns as well)

3. Statement of A/c for the past 1 year where your salary is credited (in case of salaried

people)

4. Profit and Loss statement and Balance sheet for the last 3 years in case of self-employed

persons

5. Sales tax, GST registration certificates, if applicable

6. Partnership deed in case of partnership firms (if the applicant is one of the partners)

7. Certificate of Incorporation in case of limited companies(if the applicant is one of the

directors)

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Home Loan

Home Loan ( H/L) Overview

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