Home Loan Eligibility

Overview

Home Loan eligibility is the maximum home loan amount Bank/NBFC is willing to lend out to a customer which it thinks the customer would be able to pay back. Eligibility of a home depends on various factors including but not limited to Income of the applicant, Applicants Profession, Bonus or other sources of income, Tenure of the loan, Value of the property to name a few.

General Home Loan Eligibility Calculation
Minimum Age 18 Years
Minimum Income Rs. 1.20 Lacs per annum
Loan-to-Value Ratio 75% to 90%
Minimum Interest Rate 8.35% per annum
Maximum Tenure 30 Years
Credit Score Min 650 Points
Government Subsidy Max Rs. 2.67 Lacs

How Home Loan Eligibility is Calculated?


To understand how the home loan eligibility is calculated we have to understand FOIR (Fixed Income to Income ratio), which is applicants eligibility to pay Monthly installments. Here’s an example to explain FOIR better.

What is FOIR? FOIR Calculation

Let’s assume the applicant earns Rs.50,000 per month. It is assumed that the applicant will have to spend a certain amount each month is fixed expenses like rent, food, electricity and water bills, Fuel or transportation expenses and the bank can only expect the applicant to pay from the amount the applicant is saving after the necessary expenses.


The FOIR norms vary from bank to bank and depend on a number of factors. For example the FOIR is lower for higher income earners and it’s lower to applicants staying in Tier 1 cities, since it’s more expensive to live in tier 1 cities than the expenses in Tier 2 cities.

The Home Loan Eligibility for an applicant determines how much loan amount the applicant can avail and how long the tenure will be. Knowing your Home Loan Eligibility beforehand applying for the home loan, can not only save your time but also save you from rejection and leave a mark on your credit history.


Home Loan Eligibility is calculated based on the your net income, age of the applicant, company / organisation you work for, property you want to purchase, and tenure.

Age

An applicant's age might affect the maximum home loan eligibility of the applicant. Firstly, to qualify for a home loan the applicant must meet the lenders minimum age criteria which could vary from 18 to 25 years e.g. HDFC bank requires the borrower to be at least 25 years in age, while the State Bank of India can consider applicants who are 18 years or older. Click here to check the list of banks and the minimum age for home loan. The minimum age criteria may vary depending upon the lender, if the borrower is a resident indian or an NRI, and type of employment the borrower is involved in such as if the borrower is a government employee, a salaried corporate, a self-employed professional / businessman or a pensioner.

There’s another way age of the applicant may affect the eligibility for home loan. The bank expects the lender to pay loan EMI’s only upto a certain age. This maximum age criteria affects the tenure of the loan and therefore affecting the Monthly EMI and thereby affecting the maximum loan amount payable. Though home loans are available for tenure upto 30 years but they come with a maximum age rider.

For example, in case of State bank of India offer home loans upto 30 years or maximum age of 70 years. If the applicant at the time of the application of the loan is 45 years, then the applicant can only get a maximum loan tenure of 25 years; However, if the applicant at the time of application is only 35 years then the bank would be willing to extend the loan tenure upto 30 years, thereby reducing the monthly EMI and ability to repay. If the applicant is a government employee the bank might be able to extend the loan tenure besides the maximum age.

It is important to know that in case of government employees, the maximum age limit cannot be more than the retirement age of the employee.

Bank/Financial Institution Maximum Age
State Bank of India (SBI) Upto 75 Years
HDFC Bank Upto 65 Years
ICICI Bank Upto 67 Years
Axis Bank Upto 65 Years
Citibank Upto 65 Years
Bajaj Finserv Upto 70 Years
Capital First Upto 70 Years

Income

When it comes to deciding your home loan eligibility, the banks/financial institutions prefer net take-home income over the total income of the applicant and are allowed to consider the eligible income for loan as per the FOIR (Fixed Obligation to Income Ratio) norms predefined by the Indian Government.

The reason for this is that the applicant usually have a number of ongoing liabilities including living expenses, medical expenses and savings along with possibility of ongoing debt, and the lenders has to exclude these ongoing liabilities from the total income to determine the exact eligible income for the loan. As per the FOIR norms defined by the Indian Government, the banks/FIs can only consider the 40% to 65% of the net-take home pay for the home loan income eligibility. The rest must not be include since it would be considered towards the existing obligations.

The net income should be as stated in the recent salary slip/certificate/account or as per the recent income tax report. Moreover, when it comes to the salaried borrowers,bank/FIs check the salary components as mentioned in the salary slip or salary certificate. Salary Components like medical allowance and travel allowance are being excluded from the list of considerable salary components. However, some periodic income components like incentives and bonuses can be included in the considerable income for the home loan.

The minimum income criteria may vary depending upon the profession of the borrower and the current location of the borrower. The applicant can be involved in any type of profession such as if the borrower is a government employee, an employee of a private company/organisation, running a self-owned business, or if the borrower is a retired employee of state/central government or Private Sector Undertakings. Apart from it, the current location of the borrower also matters since banks/FIs defines different income criteria for applicants living in Tier-I cities, Tier-II cities and Tier-III cities. Tier-I cities includes Ahmedabad, Bangalore, Chennai, Delhi, Hyderabad, Kolkata, Mumbai, Pune, whereas the Tier-II cities includes Agra, Ajmer, Aligarh, Amravati, Amritsar, Asansol, Aurangabad, Bareilly, Belgaum, Bhavnagar, Bhiwandi, Bhopal, Bhubaneswar, Bikaner, Bokaro Steel City, Chandigarh, Coimbatore, Cuttack, Dehradun, Dhanbad, Durg-Bhilai Nagar, Durgapur, Erode, Faridabad, Firozabad, Ghaziabad, Gorakhpur, Gulbarga, Guntur, Gurgaon, Guwahati‚ Gwalior, Hubli-Dharwad, Indore, Jabalpur, Jaipur, Jalandhar, Jammu, Jamnagar, Jamshedpur, Jhansi, Jodhpur, Kannur, Kanpur, Kakinada, Kochi, Kottayam, Kolhapur, Kollam, Kota, Kozhikode, Kurnool, Lucknow, Ludhiana, Madurai, Malappuram, Mathura, Goa, Mangalore, Meerut, Moradabad, Mysore, Nagpur, Nanded, Nashik, Nellore, Noida, Palakkad, Patna, Pondicherry, Prayagraj, Raipur, Rajkot, Rajahmundry, Ranchi, Rourkela, Salem, Sangli, Siliguri, Solapur, Srinagar, Sultanpur, Surat, Thiruvananthapuram, Thrissur, Tiruchirappalli, Tirunelveli, Tiruppur, Tiruvannamalai, Ujjain, Bijapur, Vadodara, Varanasi, Vasai-Virar City, Vijayawada, Visakhapatnam, Vellore and Warangal. Apart from these Tier-I and Tier-II, the rest of the cities falls under Tier-III category.

One more important thing to be understand towards the eligible income is that the applicant can include his/her additional income such as income generated from investments or rental income which can be a deciding factor in case of non-incomers such as Students and Housewives.

What is the minimum salary/income required for home loan?
Bank/Financial Institution Minimum Income
State Bank of India (SBI) Rs. 1.2 Lacs per annum
HDFC Bank Rs. 1.44 Lacs per annum
ICICI Bank Rs. 1.2 Lacs per annum
Axis Bank Rs. 1 Lac to Rs. 1.2 Lacs per annum
Citibank Rs. 3 Lacs per annum
Bajaj Finserv Rs. 3 Lacs per annum
Capital First Rs. 3 Lacs per annum

The minimum income for a salaried borrower is computed based on the net-monthly salary and usually ranges around Rs. 20,000 to Rs. 30,000 per month. However, few selected banks allows minimum income as low as Rs. 10,000 per month. Whereas the minimum income for self-employed borrowers is computed based on the net-annual income and usually higher than salaried borrowers, ranging around Rs. 5 Lacs or above per annum.

Loan to Value Ratio

Loan-to-Value Ratio or LTV Ratio is one of the primary factors in home loan eligibility for any applicant and determines if the borrower will get the loan sanctioned or rejected. When a bank or financial institution offers home loan, it never offers the entire amount what has been asked by the borrower at the time of loan application. The bank only provide 75% to maximum 90% of the home loan amount whereas the borrower has to deposit the rest of the amount in the home loan account at the time of loan sanction. This amount paid by the borrower is known as Margin Money or Down Payment, and the difference between the amount paid by the bank/FI and the borrower is called Loan-to-Value Ratio.

The margin money paid by the borrower into home loan account, represents that the borrower is capable of paying off the debt with monthly EMIs. Although, the banks/FIs follow this process in order to keep themselves safe from credit risk at any given point of time especially in case of partial disbursal.

If the borrower fails to deposit the margin amount into the home loan account at the sanction time, then this results in home loan rejection where the upfront processing charges and any other fee are not to be returned.

Type of Property

The type of property you have finalise for your home, also matters when it comes to home loan eligibility. The finalised property which you wants to avail, should be in the name of the seller, meaning that the seller should be a rightful owner of the property. The banks/FIs are most likely to avail home loan cases where the property is taken on lease, or the current seller only holds the GPA (General Power of Attorney) for the property in his/her name but not the actual owner of the property. This can be a big issue in case where the borrower is unable to pay off the debt and the bank/FI has to recover the remaining loan amount by selling the property but since the property is availed on lease or GPA, the bank cannot sell the property and recover the remaining loan amount.

It matters if the said property is a land/plot or a ready built building since banks/FIs would rather prefer to finance for a land/plot than a old age building/home.

Credit History & Credit Score

The credit history as well as the Credit Score of the borrower is one of the primary element of any type of loan including secured loans such as home loans. Credit history represents the lending behaviour of the borrower whereas the credit score represents the spending behaviour as well as the lending pattern of the borrower. Together, the credit history and the credit score helps banks/FIs, determine the credit risk profile of the borrower and lend the fund accordingly.

The credit score ranges between 300 to 900, where 300 denote the high credit risk profile of a borrower and 900 denote the low credit risk profile. In order to be eligible to avail home loan from a bank, the borrower needs to have a minimum credit score of 650 points. However, most of the banks/FIs prefer credit score of 700 points or higher to be safe at credit lending whereas any borrower with credit score of 750 is most likely to be approved if meets the other criteria as well. It is important to know that the lower the credit score one holds, the borrower is most likely to get home loan at high interest as compared to a borrower who holds high credit score.

Qualification

The qualification of the borrower can be crucial factor specifically if the borrower is a self-employed professional such as doctor, chartered accountant, and engineer etc.

Work Experience & Growth Prospect

Total number of work Experience of a home loan applicant represents that the borrower is currently stable in his line of profession and doing consistent progress, which represents that the borrower is most likely to have higher income in future and pay off the debt easily. A borrower with total work experience of 5 to 7 years or above represents career stability as well as the growth and is most suitable to flexi home loans since flexi home loans have higher monthly EMIs towards the end of the loan.

Professional Stability

If a borrower is working in his/her current organisation for a long time now, it shows banks/FIs that the borrower is good at maintain his/her professional stability due to constant growth in the current organization, most likely to result in higher salary than previous unlike applicants who are involved in unstable profession or usually switches employers in respective of high income offers.

It shows that although the applicant might have a high monthly salary at the current point of time, but have a tendency to not maintain employment stability, which is most likely to be an issue for the income growth of the applicant in future and possibly resulting in debt pay off issues.

Category of Current Company / Organisation

When it comes to salaried borrowers, banks/FIs also consider the organization you have been employed in and whether your current employer/organisation is safe in order you to have a consistent income growth and professional stability. The banks/FIs each year update their list of credit risk organisation who are either have been labeled as bankrupt or on the brink of it as announced by the government each year. If the borrower is employed with one such company/organization, the banks/FI tends to avoid such case due to the possibility of bankruptcy of the borrower, resulting in a threat to earnable income of the borrower as well as the future growth.

Family Background

Family background of a borrower can be a deciding factor for home loan in such cases where the applicant doesn’t hold any property or asset in his/her name but his/her family hold a sizeable asset or property. An applicant with a good family background is usually considered to inherit all or some of the family inheritance which can be considered as a guarantee in respective of home loan.

Expense Pattern

The expense pattern of a borrower tells how easily a borrower can pay of his/her debt without the risk of making defaults. The banks/FIs consider it to determine the credit risk profile of the an applicant. For an example, an applicant with four or above family dependants is more likely to make a default due to high ratio of average expense per person in the family as compared to a borrower with zero to two family dependants. A higher number of the family dependants also results in less savings, resulting in low income in respect of FOIR norms defined by the bank.

The banks/FIs are most likely to prefer borrower who have zero family dependants, travels to work through an cheap mode of transportation such as cycle or public commute, take zero vacation, grow his/her own edibles, no lifestyle commitments such as gym membership or any other kind of monthly subscription, and lives a simple life without any luxurious facilities.

When it comes to expense pattern, even the smallest bank transaction over a period of time, reflects the spending behaviour and credit needs of the borrower. Transactions like withdrawing small amount of funds and low saving account balance at the end of each month, can be considered negatively against your credit profile.

Government Subsidy

The government subsidy a borrower is eligible for, can not only increase the chances of home loan approval but also enhance the eligible loan amount. Depending upon which applicant profile, either EWS, LIG, MIG-I or MIG-II, the borrower can avail subsidized interest rate and save on the repayment of the home loan. Currently, government of India offer subsidised home loan interest rate to the borrowers who have applied for home loan under Pradhan Mantri Awas Yojana. Under PMAY, an applicant can be eligible for the subsidised interest rate based on if he/she falls under EWS category, LIG category and MIG-I or MIG-II category.

An applicant can receive government subsidy upto maximum Rs. 2.67 Lacs under CLSS (Credit Linked Subsidy Scheme) and upto Rs. 1.50 Lacs subsidy under AHP (Affordable Housing in Partnership) or Beneficiary-led Individual House Construction or Enhancement.

Interest Rates

The interest rate also plays a major role and is sometimes linked to loan amount. Some of the banks/FIs offers low interest rates in their home loan offerings if the borrower is applying for loan amount above a certain limit. Hence, if the borrower gets the approval, then the loan amount is sanctioned at the low interest rate range. It is important to know that if the borrower is female applicant or primary applicant in case of joint home loan then the banks/FIs usually offers a concession of 0.50% on applicable interest rate.

Loan Tenure

The tenure of home loan is also a major factor in deciding eligibility for home loan. Most of banks offers tenure ranging from 1 years to maximum upto 30 years. However, few of the banks have set the minimum tenure criteria to 5 years such as Citibank. Moreover, few other banks have set the maximum tenure criteria between 10 years to 20 years, such as Axis Bank offers home loans for a maximum period of 10 years and Kotak Mahindra Bank offers maximum tenure upto 20 years only.

The tenure may also vary depending upon the home loan offering of the bank/FI to salaried and self-employed borrowers.