16 JUNE, 2022

In India, it is not easy to purchase a home without availing a housing loan. A home loan acts as an excellent financial bridge that makes your dream of becoming a homeowner, a reality. However, getting a home loan approval is not easy. Lenders may turn down your home loan application owing to various reasons like low credit score and history, builders’ poor reputation, unauthorized property location etc. In fact, few lenders may have their internal scoring procedure to understand your home loan eligibility.

Mentioned here are few common parameters that lenders consider for deciding your home loan eligibility -

  • Credit history

Lenders always prefer lending if you have a clean financial record. A credit score reveals a lot about your financial stability and health. Whether you will repay your EMIs timely or will default can easily be checked by fetching your credit report. This record in your report is maintained by the credit bureaus. Usually, 750 is a preferred score and anything below this may not be preferred by lenders. While a higher score enhances your chances of availing home loan application approval, a lower score either results in loan rejection or approval of it at a relatively higher home loan interest rate. A higher interest rate is charged to compensate for the involvement of higher credit risk.

Thus, to enhance your home loan affordability, ensure to build a strong credit score of 750 and above. You can do so by adopting disciplined financial habits. These habits include timely repayments of your credit card dues and loan EMIs, keeping your CUR (credit utilization ratio) below 30 percent, keeping a close watch on your co-signed loans for timely repayments, maintaining a balanced mix between your secured and unsecured loans etc.

  • Occupation

Occupation is a crucial parameter taken into consideration by lenders for approving a home loan. It is necessary because your repayment capacity depends upon your income. Lenders may approve your application for home loan if you belong to select occupations. For instance, lenders highly prefer lending if you are employed with government banks and PSUs owing to your job stability. Next, they may also lend if you work with MNCs or blue-chip companies. Chartered accountants, lawyers, engineers may also be preferred by lenders owing to their low-risk profiles.  

  • Work experience

Lenders usually ask for your overall work experience and current work experience. The longer your work experience, the more preferred you are by lenders for lending due to higher financial stability. For instance, individuals working for over 10 years are more preferred than those with up to 5 years of experience. Most lenders usually prefer lending if you serve at least 3 years with your current company.

  • Relationship with bank

Older your relationship with the bank, higher your chances of availing housing loan approval. Banks often value old customers owing to the familiarity with their financial past. For instance, an individual associated with a bank for over 10 years holds higher chances of availing loan approval than those with no past banking relationship. Such a banking relationship may be in the form of a savings account, current account, fixed deposit etc.

Ending note

Before you apply for a home loan, ensure to understand your home loan approval chances. You can do so by using a home loan affordability calculator. Such calculators ask for specific details like your loan amount requirement, preferred repayment tenure and interest rate, your salary, any existing debts etc. to display lenders willing to offer you the home loan. Through this, you can compare amongst different lenders to choose the one offering the best deal. Once you have zeroed on the lender, you can use the home loan calculator to compute a suitable EMI based on your repayment capacity.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.