Svetlana Verma, a Mumbai-based chartered accountant, had found her dream house. It was in the desired location and priced right. Svetlana was looking at financing the buy with a home loan and personal savings. The 30-year old received promotional calls regularly from her bank to avail of a home loan. She decided to approach the bank to get the loan. But, to Svetlana’s dismay, the bank rejected her application.
Let’s understand what banks look at before approving your loan.
Credit history: Banks use credit score to determine your credibility. It is the most important factor used for reviewing your loan application. A credit score reflects how you treat your financial transactions. Credit-rating companies like CIBIL keep a record of payment (or non-payment) of your bills and EMIs. Delayed payments also impact your credit score. If you have a lower credit score, your loan application is likely to be rejected. Hence, it is crucial to maintain a high credit score by paying off your debt in time.
Income source: Banks need to know how you would manage your loan repayment. Hence, your disposable income is what matters to the bank. If you are stretching too much, you have a high possibility of default on loan repayment. Your income is also important to determine your loan amount eligibility. If you have applied for a joint loan, your spouse’s income will also be considered.
Profession and Experience: Banks prefer applicants with a stable and secure job. Hence, government and PSU employees have a higher likelihood to get loans. Engineers, doctors, lawyers follow. Self-employed are the least preferred because they have a fluctuating income. How long you have been working with the company is important too. Thus, your employment history is important for your loan approval.
Existing loans: Your loan application is also affected if you have any previous loans to be repaid. A new EMI to your previous debt is likely to affect your repayment capacity. But a good credit score and proof of likelihood of a higher income can improve the chances of approval.
Age: The younger you are, higher are the chances of loan approval. People in the age group of 25-40 years have enough time in hand to earn and repay the loan. Hence, banks consider them as a safe. Applicants above 60 years are risky for the banks.
Location: Some localities do not have the clearances from government bodies and other institutions. A loan application for a property in such premises is likely to get rejected. Also, banks do not prefer to fund a property located outside city boundaries. A house within city limits or in a prominent locality is preferred.
Readiness: How soon you can get the possession affects the loan approval decision. Banks prefer a ready house over under-construction properties. Chances of delayed completion or non- completion are high in case of the latter. Hence, builder’s credibility and proposed completion time matter in such cases.
Always remember to consider these points when applying for a home loan. Over past few years, the approvals have become easier to get. This is mainly to promote investments in real estate. But do not expect banks to be lenient while scrutinizing your application. Be careful about the decisions you make, so as not to compromise your loan eligibility.