Posted On: 18-August-2022


What is a home loan?

Home loans are borrowed generally for the purpose of buying a house, or a flat, or a plot of land that may go through future construction. What plays an important role in home buying is your home loan eligibility. When you apply for home loan you need to determine your total eligibility, which will mainly depend on your repaying capacity. Your repayment capability depends on your monthly income, the assets you hold, the stability of your income and many more. Before disbursing the loan amount the bank has to ensure that you're able to repay the loan on time.

The higher your income the more will be the loan amount you'll be eligible for. Other factors determining the loan amount are the tenure and the interest rates. There is also an upper age limit fixed by the banks that act as a dominating factor in your loan eligibility.

When you take a loan your lender will require you to pay 10 to 20% of the home’s purchase price as down-payment. The rest of the price of the property is financed by the lender himself. The total amount you borrow for home loan would include registration, transfer and stamp duty charges.

Even if your lender is capable of offering you higher amount of loan you may not borrow the entire amount. You can borrow an amount lesser than your eligibility. You must try to pay the maximum amount as down-payment so that your home loan outstanding and your interest rate cost gets decreased.

There are some documents that you must provide to your lender for the approval of your home loan. On the verification of those documents you may or may not be approved the loan option. For that the bank will ask you to submit your identity and residence proofs, latest salary slip and income-tax return and the last 6 months bank statements or balance sheet. Some lenders may also require collateral security like the assignment of life insurance policies, pledge of shares, national savings certificates, mutual fund units, bank deposits or other investments.

Based on all these proofs the banks decide whether to provide you with the required loan or not. The bank will give you a sanction letter stating the loan amount, tenure and the interest rate, among other terms of the home loan. The stated terms will be valid till the date mentioned in that letter.

You can also use home loan eligibility calculator to calculate your home loan eligibility and find some peace about it. Your CIBIL score is another dominant factor in your loan approval. CIBIL score states your past record of loan repayment. If your CIBIL score is good it'll act as an advantage for you in the home loan approval process and in case it isn't then the lender may refuse to lend you. Therefore it's important for you to maintain a good CIBIL score which you can do by making loan repayments on time.