Owning a house is a lifetime achievement for many, especially among the people of India. However, the financial requirements for owning a house are expensive. Thus, people are opting for home loans to fulfil their housing needs. Getting a loan is a huge process and involves numerous criteria and verifications for successful loan sanctioning. This blog will explain the loan process and give you a clear overview of how much housing loan you can get.
Understanding House Loans in India
House loans are the amount of money borrowed from a bank or other financial institution to fulfil housing needs. The money borrowed can be used for numerous housing purposes such as buying, constructing, renovating, extending, and refinancing a house or a property. The borrowed money is then paid as EMI on a monthly or small instalment basis with specific interest rates.
Factors Determining Your House Loan Eligibility
Income
Your annual and monthly income plays a major role in determining your eligibility for the housing loan. It gives a clear picture of how much loan you can afford and the duration to repay, based on your salary after deductions. Generally, the last three months of salary slips and the last six months of bank balance are verified to identify eligibility.
Age
Age is a major factor in determining loan eligibility, especially with the loan tenure. Younger applicants of more than 18 years of age have a chance of getting longer loan tenure periods, as they have longer working years ahead of them. On the other hand, the tenure of older people could have shorter loan repayment tenure.
Credit Score
The credit score or CIBIL score is a major factor in determining the loan eligibility. The previous loan repayment history and financial health significantly impact the credit score. Higher credit scores increase the chance of successful loan sanctioning and also decrease interest rates. If you have existing debt or unpaid loans, it could affect your credit score.
Property Value
Your property value is vital in determining the percentage of loan allocation, which is commonly known as the loan-to-value (LTV) ratio. Based on the property value, the loans can be sanctioned up to 80 to 90%. However, the RBI has certain guidelines to calculate the LTV ratio for lenders.
Dept to Income Ratio / Existing Liabilities
The Debt-to-income ratio is generally calculated to know the status of your existing liabilities. It is calculated by dividing the total monthly debt by the net monthly income. To meet the eligibility criteria and reduce the risk for the lender, your DTI should be less than 50%.
Calculating Your House Loan Eligibility
Manual Calculations
House loan eligibility can be calculated manually using the eligibility calculation formula: Eligibility = (Income – Existing EMI) x Multiplier (based on Interest Rate and Tenure).
Online Loan Eligibility Calculator
On the other hand, the eligibility can be analysed using online calculators, provided by various banks and financial institutions.
- Access the bank or financial web portal that has an online loan eligibility calculator.
- Enter your details such as age, monthly income, existing EMIs, and your city of residence.
- Provide necessary information about your employment status, years of employment, and credit score.
- In some financial portals, a range of potential interest rates, EMIs, and loan tenure options are provided based on your profile.
- Based on the information, you can get a rough estimation of the loan amount.
Common Eligibility Criteria
- The applicant for the loan should be between the ages of 23 and 65 years.
- The credit score (CIBIL) of the applicant should be more than 750.
- The applicant should have at least three years of work experience, with a stable salary.
- The minimum salary after deductions should be more than INR 25,000.
Documents Needed For Housing Loan Application Process
Identity Proof
- PAN Card
- Aadhaar Card
- Driving License
- Voter ID
- Passport
- Passport-size Photographs
Address Proof
- Aadhaar Card
- Driving License
- Voter ID
- Passport
- Recent Utility Bills- Water, Gas, Electricity
Income Proof
- Last 3 Months Salary Slips
- Last 6 Months Bank statement with Salary Credits
- Employment Certificate/Offer Letter
- Form 16 (IT Return Form) for the Last 2 Years
Property Related Documents
- Sale Deed
- Approved Building Plan
- Property Tax Receipts
- No Objection Certificate
Popular House Loan Schemes in India
PM Awas Yojana (PMAY)
It is the central government housing scheme that helps in providing affordable housing opportunities for the Economically Weaker Sections. They provide a subsidy of up to Rs. 2.67 lakh on your home loan for the upliftment of the underprivileged. The subsidy can be extended through the Credit Link Subsidy Scheme (CLSS) and can assist in securing a home loan.
Haryana Housing Board Scheme
It is the Haryana State Government Scheme, which has been in existence since 1971, and provides housing facilities for socially and economically weaker sections of people within Haryana.
Furthermore, the Haryana Urban Development Authority (HUDA) scheme was introduced to offer freehold residential and commercial plots to people with a monthly income of less than Rs. 3 Lakh.
Kerala Housing Board Scheme
Kerala State Housing Board was launched in 1971 to provide housing opportunities through loans for the people of Kerala. Grihasree Housing Scheme, Haritham Apartments, and Kowdiar Heights are some of the popular schemes of the Kerala government that help in providing home loans and subsidies for people below the poverty line.
Delhi Development Authority Housing Scheme
Delhi Development Authority Housing Scheme provides numerous housing benefits for people based on income-based categorisation and reservations. They provide housing based on a free-hold or lease-hold basis.
NTR Urban Housing Scheme
Nandamuri Taraka Rama Rau (NTR) Housing Scheme was the first housing scheme introduced in Andra Pradesh, sanctioning housing opportunities for over 75,000 houses aligning with PM Awas Yojana. They provide beneficiaries with up to Rs. 2.5 lakh for the economically weaker section.
Tamil Nadu Housing Board Scheme
TNHB provides housing opportunities by helping citizens purchase flats at an affordable rate, based on their income bracket, and the reservation categories. The minimum criteria to apply for the scheme are,
- Must be from Tamil Nadu and have the age of over 21 years.
- The applicant or their family members should not own a flat or a plot through TNHB.
- They must come under the respective income category.
Conclusion
In summary, housing loans in India are crucial for individuals to fulfil their housing needs such as to buy, construct or renovate homes. Numerous public and private sector banks and financing sectors provide loans for individuals with varying financing opportunities. The government also provides loans and subsidies to back up those who cannot afford the entire housing cost. Although it provides financial benefits, it is necessary to ensure that the loans are manageable for repayment by understanding the terms and conditions.