Top Factors That Can Influence Your Home Loan Eligibility

Imagine Mr. X, a young professional with a stable job, applying for his first home loan but is surprised when his application is denied. Despite having a good income, he discovered that low credit score due to missed EMIs affected his home loan eligibility.

Like Mr. X , many aspiring homebuyers face such loan application rejections owing to multiple factors. This is primarily because of not meeting the eligibility requirements as set by the bank. Even details that may see miniscule on a paper can make a big difference in your home loan journey. So, if you’re planning to apply for a Home Loan, consider these factors that can impact your loan eligibility. 

8 Factors That Influence Your Home Loan Eligibility

Here are seven factors which have a significant impact on your home loan eligibility

1. Age: The Impact on Loan Tenure

Lenders set age limits for borrowers, which influence the loan tenure. Younger applicants may receive longer tenures (e.g. 25 years at age 30), while older applicants (e.g. 50) might get shorter tenures (e.g. 10 years). A longer tenure results in smaller EMIs but a higher interest burden, while shorter tenures reduce interest payments but increase monthly EMI.

2. Income: A Key Indicator of Repayment Ability

Your monthly income is critical in determining loan approval. A steady income demonstrates your ability to repay without financial strain. Lenders prefer:

• Salaried employees: Generally, 2-3 years of stable work experience. You have to provide 3-6 months’ salary slips to show your income stability.

• Self-employed individuals: Evaluated based on business performance in the past 2-3 years. If you’re a self-employed applicant, you may have to provide audited financial statements of last 2 years including Balance Sheets and Profit & Loss Statements.

3. Credit Score: Reflecting Your Creditworthiness

A good credit score (750+) indicates high creditworthiness, improving your loan eligibility. To maintain or boost your score, make timely payments on loans and credit cards and pay off debts consistently. A lower score increases the risk of loan rejection or unfavourable terms.

4. Employment Status: Stability Matters

Lenders favour stable employment, with salaried employees needing 2-3 years of continuous service, while self-employed individuals are assessed on business income and stability. A stable job or business history significantly improves your loan approval prospects.

5. Loan Amount: Borrow What You Can Afford

Choose a loan amount that matches your financial capacity rather than opting for the maximum eligible amount. Borrowing too much can strain your EMI payments, potentially harming your credit score. Use an online home loan eligibility calculator to estimate your ideal loan amount based on income, tenure, and interest rates.

6. Loan Tenure: Balancing Affordability and Interest Cost

Longer tenures lower your monthly EMI but increase overall interest costs, while shorter tenures reduce the interest burden but require higher EMI payments. Balance your current financial situation and plans when selecting the loan tenure.

7. Current Obligations: Managing Existing Debts

Lenders will continually evaluate your current debts to assess your repayment ability. If you have high existing loans, consider paying off some debt before applying. Including additional income streams (e.g. rental earnings) can help boost eligibility.

8.  Details and Loan-to-Value (LTV) Ratio

Banks usually check the property you’re taking the loan for. If the property is free from legal disputes and is worth more, you may secure a higher loan amount. Also, if you have the capacity to pay 20% of the property value or more as down payment, you might be eligible for a higher loan amount.