Availing a home loan from a bank

A home loan can help you realize your dream of owning a house. Before you apply for a loan, you should consider your budget.

You will use your net monthly income and expenses to create a budget. This budget should also include your insurance premium and other monthly outflows (e.g. MF SIP’s or ELSS). It is crucial to determine how much money you can spare each month for EMI. Besides the EMI, you will consider other expenses such as maintenance fees and housing society charges. This is the most important point in determining your home loan amount. EMI payments are a long-term commitment.

A ready-to-move-in house will allow you to save money on rent, which will help you pay your EMI. You can get your EMI paid if you live in employer-provided accommodation.

Considerations influencing a loan

Before you choose to apply for a sanction for a loan, you need to consider your income and savings. You will also need to consider how much EMI your budget can afford without compromising your lifestyle. Your future income is another consideration. You should also remember that if you buy a more expensive property, you will need more money, and therefore, you will have to pay more EMI. You will be responsible for the monthly rent and pre-EMI (interest-only up to 18 months) until the flat is yours. Calculate how much EMI you can afford without sacrificing your goals or current lifestyle. You can choose to buy a smaller house if you don’t have the funds or delay your whole plan for several years.

Budget (Maximum loan provided by a bank + margin) Two types of funds are necessary when you buy a property

1. Margin of your own money — 10-25%
2. Bank Loan — Usually, banks and housing finance companies offer 75 % to 90% loan of property value.
Reserve Bank of India made it mandatory for banks and other financial institutions not to exceed 80% of the house’s cost when extending homebuyer loans. As such, you will need a large margin (your part in purchasing a house/flat). If you purchase a house valued at 40 lakh, you will need to pay 20% or 85,000 as margin money. Banks/housing finance firms can finance home loans up to 90% of the house’s total value.

Application for a Provisional Sanction letter

First, find out how much you are allowed to borrow from a bank. To do this, you will need a provisional letter. In certain metros, builders will demand a provisional sanction letter when they approach you. All of us are familiar with the anxiety and fear that comes with applying for a loan. The bank decides whether or not we can afford our dream home, first car, or whether or not our children can go on to higher education. The lender’s decisions will determine your chances of living a better lifestyle.

Personal Factors for a loan sanction

After considering two factors, the bank decides to grant you a loan for your home loan application.
A. Your ability to repay the loan and your income
B. Your CIBIL score (loan repayment capability /loan track record)

A. Your Income/Ability to Repay the Loan:

The main criteria for determining the loan amount is your income from work/business and income from other sources.
These are the things that banks and housing finance companies consider:
(1) What sector do you work in? (Pharmacy or IT, Government Sector, Private Sector. MNCs. What is your job title?
(2) Your company profile, job profile, post, salary, work experience, age, and family liabilities.
(3) If you are a professional (doctor or lawyer, CA, CFA, Architect). The bank will consider your work history, your yearly returns, and your financial situation.
(4) If you are a businessman, then the lender will examine your experience in a specific business, the condition of your company, and your balance sheet.
(5) Banks take into consideration your current lifestyle and the costs associated with maintaining it.

Norms that apply to both salaried and businessmen.

Only a bank can approve your loan to purchase a house. If your savings to debt ratio is less than 40:60, a bank may not approve you for a house purchase. Let’s say your gross monthly income is 60000, and your net monthly income is 50000. The difference is because it reflects income tax payments, GPF/NPS, and other salary deductions. As per the 40:60 rules, 40% of your salary should go towards saving, and the remaining 60% can be to pay the EMI (Rs 36000). The amount that can be for EMI is 26000 (60% of your salary (Rs 36000) -deductions (Rs 10000). This indicates that you can get a home loan with an EMI below 26000. If you have a car loan with an EMI above 8000, the bank will only consider the EMI amount of 1800

Criteria for applying –

Prepaying your car loan is a good idea to avoid any delays in getting a loan. Before applying for a new loan, it is important to close any pending loans and have healthy credit. The average number of ITRs they have filed over the past three years will determine the loan amount for businessmen. Every lender usually has a loan calculator that you can use to calculate your loan amount. Different criteria may apply to home loan eligibility. These include borrower track record and turnover in business.

How can I get a larger loan amount?

Two main factors that affect loan eligibility are Salary and ITR

1. If you expect a salary rise shortly due to pay revisions, promotions, and joining a new job, it is best to apply after the confirmed increment

2. If your ITR for the upcoming year is greater than the one filed within the previous year, you can apply once you have the records of the increased ITR.

3. Always apply for a loan with a co-applicant, who is employed or has an income. This could be your spouse, father, mother, unmarried daughter, or husband.

4. Maintain a bank account with a high average balance.

Be cautious and responsible

5. Keep funds in your account, so there is no chance of the cheque being bounced or dishonoured.

6. If you are not able to repay the loan amount, inform the bank officer. HRA is a 20% increase in basic salary. This will result in a rise in your monthly income.

7. The lender may allow you to stop regular investments (SIPs) to increase your loan amount. In this case, you will be able to pay a higher EMI.

B. CIBIL score

800+ can be considered a good score for loan criteria. CIBIL Score shows you the number of loans that have been repaid and current/running loans. It also displays how many loan inquiries you have made in the past. Are all your loans being repaid on time? Are there any settlements or write-offs? What is your current liability? How about overdue? You can also apply for a CIBIL score on the CIBIL site. It is an excellent tool for banks to determine your intent to repay loans with loan liabilities. It is useful to determine the interest rate on housing loans. Banks may charge customers with a CIBIL Score greater than 800 a lower interest rate.

How to maintain a high CIBIL Score

1. Pay EMI on-time
2. If you don’t need a loan, don’t ask for one.
3. You must repay your credit card debt as soon as you can. Your score will rise if you pay the full amount. Banks and housing finance companies may be more inclined to consider your application.
4. Pay off any outstanding loans as soon as you can if there are overdue amounts.

More tips –
5. If you aren’t eligible for a loan, consider small loans to purchase a motorbike, refrigerator, TV, or other items. This will improve your credit score. After you have repaid or begun repaying them, you can apply for a home loan.
6. Unless necessary, avoid giving personal assurance to anyone. In cases, if the applicant fails to pay the EMI on time, it will decrease your CIBIL score.
7. You may have chosen a loan with a floating rate of interest. The floating interest rate could increase, which can cause the EMI to rise. The increase may be subtle, and you continue to pay the old EMI. You may see the increased amount as an overdue amount, which could impact your CIBIL score.