Taking a home loan is easier said than done. Though in today’s scenario every Bank & Financial institution is eager to lend but getting a loan sanctioned can be a difficult task. It should be notes that, like any other financial product, it is important to be aware with how home loans work to avoid any unwanted post loan sanction/disbursal surprises. Here is the most important thing you should know before signing on the loan agreements.
A laymen’s way to calculate your loan eligibility is by calculating the Equated Monthly Instalments (EMI) or the current as well as future obligations. Banks usually restricts the monthly loan instalments at 40-50% of the borrower’s gross monthly income considering that 50% of the income would be required to meet other personal necessities. This percentage is termed as “Fixed Obligation to Income Ratio” (FOIR). If you have existing liabilities, say an existing running loan, then your loan eligibility goes down. Some banks are sensitive about the number of dependants you have. Higher number of dependants implies lower repayment capacity as more money will be required to meet the personal basic necessities.
Apart from your financial strength your profile also helps the bank in defining your loan eligibility. For borrowers with stable source of income it relatively easier to get loan than borrower with erratic earnings. Your age determines how many earning years do you have which define your re-payment capacity and eventually decided the tenure of the loan. Usually, loan tenures do not go beyond your retirement age, unless you’ve a younger co-borrower in the loan.
The co-borrower has to be at least 21 years for most of the banks. Also, if the co-borrower is earning their income can clubbed while considering the loan eligibility this allows you to get a higher loan amounts.
The value of the property is also considered before sanctioning the loan. Banks usually cap the loan amount at 70-80% value of the property or 90% of the registration values whichever is lower, this is termed as Loan-to-Value (LTV).