How Banks Calculate Your Home Loan Eligibility?

Today we will talk about how to calculate how much loan amount you are eligible for. We will talk about how different banks calculate loan eligibility and what are the different parameters which can directly affect your loan eligibility.

The principles used are similar for all types of loans like home loan, car loan, personal loan and loan against property but the calculation differs based on type of loan.

What is Loan Eligibility?

Loan eligibility implies how much money you get from a bank for purchase of your home or against a property you already own or for any other purpose. Your loan eligibility is calculated based on the formula which we discuss with you in this article.

How Banks Calculate Your Home Loan Eligibility

How does the bank look at you at the time of sanctioning a loan?

To understand more about loan eligibility, let us think from a lender’s point of view for a minute. Think as if you are a lender and you are giving money to a person.

Major Factors Which Affect Your Loan Eligibility:

  1. Your monthly income:

First question you will ask a borrower – how much money can he pay as EMI every month.  This depends upon his income and his expenses. You will also want to know how regular or sustainable the income flow is.

It is a simple fact that higher your monthly income more is the chance of your being easily able to pay a larger EMI. Since you also need to meet your regular living expenses, it is fair to say that you can pay only a portion of your income, and not your entire income, as EMI.

  1. Past credit history:

Your past loan repayment record and credit history also determine your loan eligibility. If a person has a bad credit card repayment record, then he/she is categorized as a high risk customer. Either he faces genuine hardship in being able to pay EMI or has been a willful defaulter. In either case, banks are quite wary of lending to such people.

  1. Age of the loan applicant:

Age of the loan applicant also affects loan eligibility. Banks have to ascertain that for how many years you can pay the EMI. A person in his 30’s can pay the loan for next 30 years, but a person who is in his 50’s will retire at 60 years and hence he has less than ten years to pay back his loan.

  1. Profession:

Profession of the loan applicant also determines his/her loan eligibility. Banks want to ascertain if the income flow is regular or not. Some professions such as software developer, doctors, banking jobs are eligible for a higher loan amount as compared to those people who are working in BPO sector.

  1. Your past relation with bank:

Many banks (especially PSU banks) look at your past relationship with the bank and decide your loan eligibility.

  1. Employer category:

All the major banks have categorize big companies into A, B, C categories and provide them different interest rates. So, employees of Cat A companies may be offered better interest rates as compared to others. You need to check about this information with the respective banks which matters a lot in the long-term.

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Gold Loan in India at Low Interest Rates

What is a Gold Loan?

Gold Loan is a type of personal loan which is given against security of gold.  Many private banks, public sector banks and other finance companies provide gold loans at attractive rates.

Many people opt for this loan instead of unsecured personal loans to meet the requirements of their children’s studies, marriages and other short term needs.

Gold Loan in India at Low Interest Rates

With the increase of gold prices over recent years, demand for gold loans has increased significantly in monetary terms. For example, Muthoot Finance, one of the leading gold loan providers, has seen a 25% increase in the Gold Loan.

Benefits of Gold Loan:

  1. Lower interest rates compared to personal loans – As gold loans are secured against the pledged gold jewellery and ornaments, rate of interest available on gold loan tends to be lower than that available for unsecured personal loans.

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  1. Minimum paperwork – Bare minimum paper work is required for hold loans. You just need an address proof and an ID proof. Simple process – Bank is lending against the security of gold, which is easy to sell and trade. Hence, it doesn’t need to do a detailed credit check on the customer. All you need to do is need to do is pledge your gold and take up-to 70% of the total market value of the gold as loan.
  2. No income proof – One of the main benefits of gold loan is that you don’t need any salary proof for taking a gold loan. Even an unemployed or non-working person can get a gold loan.
  3. No CIBIL check – Banks and gold loan companies don’t insist on a clean CIBIL report or a high CIBIL score for sanctioning a gold loan. However, gold loan availed by you appears in your CIBIL report. So, any default on gold loan may negatively impact your CIBIL score. On the other hand, a good repayment track record on gold loan may help improve your CIBIL score.
  4. In rural areas, agriculture loan against gold is also available for farmers at low interest rates.
  5. In gold loan, borrowers also have an option to pay entire interest at the end of the loan repayment period instead of regular EMI’s.

Some charges applicable on gold loan:

  1. Loan processing charges: Some banks may waive the charges while others take a processing fee.
  2. Late payment penalty: Any delay in repayment of interest or principal will entail a late payment penalty. Actual penalty may vary from bank to bank.

It is always advisable to check all applicable charges with the gold loan provider before taking the loan. These extra charges could dramatically change the amount which you finally receive.

Important documents required for gold loan:

  1. Identity proof such as driving license, passport etc.
  2. Address proof such as ration card, electricity bill etc.
  3. Signature proof – either PAN card or bank attestation.
  4. 3 passport size photographs.

Below we have listed some of the leading banks and some other financial companies which offer gold loan.

  1. SBI, HDFC and ICICI Bank
  2. Muthoot finance
  3. Mannapuram Gold loan

List of Some Best Home Loan Products in Terms of features, effective rates and benefits

Home Loan Products:

Most home loan borrowers opt for plain vanilla home loans where they pay a fixed monthly instalment as an EMI. Not many people know that some home loan provider banks and finance companies, in order to increasing the market share, now offer extra features and benefits to customers on home loans. With easy availability of these different alternatives, it is that much more important to make a well researched decision. If you are also looking for a home loan now or in the near future, then this post will help you determine the home loan variant suitable for you.

Home Loan Products

Some home loan variants and their benefits:-

  1. Home Loan for Women:

SBI and ICICI Bank offer a discounted rate of interest of 10.10% to women borrowers.

To be eligible under the scheme, in case of SBI, the primary applicant must be female, property must be owned by female (either as sole owner or first joint owner) and a majority of the income used to calculate eligibility must be that of the female.

In case of ICICI Bank home loan, the benefit is available to a female applicant provided she is an owner (sole or joint) in the property. Female does not need to be the first owner and neither should her income necessarily be dominant for calculating eligibility.

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  • Application Form and KYC
  • Income Proof
  • Property Documents- New Home Loan
  • Additional Documents for Loan Takeover/Transfer
  • Typical Accepted Proof
  1. Longer loan tenure:

Some banks now offer loan repayment period up to 30 years which helps reduce the monthly EMI.

  1. Home Loan Top Up:

This is a top up loan that is provided by the bank to its present customers. When a home loan borrower avails a home loan from any banks, then after 6 to 12 months, he can avail a top up loan on the same property subject to total loan to value not exceeding 75%. This money can be used for any non-speculative purpose, for home renovation or other personal use.

  1. Step down loan facility:

When the loan borrower completes his/her repayment for some time, he/she gets an option to reduce the EMI on the home loan. Axis bank empower home loan is one of the best example of this type of loan facility. Axis bank has mainly designed this service for those self-employed people who pay their loan amount monthly without any delay.

  1. Smart saver or Home credit facility:

Many a time’s home loan borrowers have surplus money but don’t want to prepay the loan as they may need the money in future or for some emergency. With smart saver home credit facility offered by SBI, Citibank and IDBI Bank, the customer can keep his surplus money in the bank and pay interest on home loan on the net difference between the two subject to a threshold.  This help borrowers manage their cash flow, keep liquidity and still save interest.

Everything You Need to Know About Loan against Property

Loan against property is a type of loan which can be taken by giving a residential or commercial building as security. Banks require that the borrower should have clean title to the building and the same should have been constructed as per building norms.

Loan against property

As this is secured loan, interest rates are low when compared with unsecured loans like personal loans.

Need money for your child’s studies or to grow your business? Well, the money already exists in your house.  You just need to discover it.

In simple terms, loans can be categorized in two forms: secured and unsecured. Credit card and personal loan are examples of unsecured loans while housing loan, loan against property and car loan are secured loans.

When you should look at LAP?

For anybody who is looking for a loan for a medium term (say, a few years) and has either his home or any commercial property to offer as security, LAP is the lowest cost option available. For those looking for loans for a very short period, say a few days or a few months, gold loans offer an attractive option.

Benefits of LAP:

LAP has plenty of benefits; some of which are given below:

  1. You can get 50- 60 % of property’s market value as loan
  2. Interest rates significantly lower than personal loans, though slightly higher than home loans. Typical loan against property interest rates range from 11.5% to 16%.
  3. Fast processing – LAP applications can typically be processed within 7 to 10 days once all loan documents are in place
  4. Some pre-prepayment (typically 25 % to 90%) is allowed in a year without any charges. So, in case you have surplus money, you can prepay your loan and reduce your interest burden
  5. For individual borrowers, there is no penalty for even full prepayment or foreclosure. However, in case you borrow in the name of a business entity, prepayment charges of 2 – 5% typically apply
  6. In case you need some more money, and in case the existing loan amount is less than 40-50% of value of the property, top up loan is possible. This is a very helpful feature for many businessmen.

Disadvantages of LAP:

  1. Maximum LTV (loan to value) is capped at 60% for residential property and 50% for commercial property. This means that banks won’t give more than of the 60% of value of house property and 50% of value of commercial property as loan. Note that the value is typically taken as market value and not registry value or circle rate value.
  2. You need to processing charges of 0.25% to 2.0% of the loan amount when availing a LAP.

Useful Tips to Increase Your Home Loan Eligibility

Sometimes, people looking for a home find that the total home loan amount for which they are eligible is insufficient for buying their home. In such a situation one has to look for means of increasing the eligible loan amount.

There are many different ways in which one can increase the eligibility amount for home loan. In this article, we will share some of the useful tips through which one can increase home loan eligibility.

  1. Opt for a longer tenure:

The home loan eligibility is calculated on the basis of how much money one is able to afford as EMI every month. By increasing the loan tenure, the amount of loan increases.  The maximum loan tenure available depends upon two factors – borrower’s age and the maximum loan tenure offered by a bank.  Different banks offer maximum loan tenure of 15 to 30 years on home loans.

  1. Repay Existing Shorter Duration Loans:

If one has other outstanding loans, say a car loan or personal loan or an old home loan with balance loan tenure between six months to five years, the eligibility for fresh home loan will be lower due to lower incremental EMI servicing capability. So, by paying off these loans, the loan amount will increase significantly.

Useful Tips to Increase Your Home Loan Eligibility

3. Add Other Earning Family Members as Co-applicants:

One can add direct family members earning more than Rs. 25000 per month and not older than 60 years as co-applicants. In such a case, their income will also be counted towards determining home loan eligibility. Eligible co-applicants are spouse (husband/ wife), parents, sons, unmarried daughters, brothers and unmarried sisters.

These are some of the easy and legitimate ways to increase your home loan eligibility.

Latest Trends in the Banking Industry

Latest Trends in the Banking Industry:

Banking sector is growing at a very fast rate and the way people do banking is changing even faster. Gone are the days when one had to visit the bank during day time on working days and wait for hours in front of teller counter to get cash or do other simple transactions.

India has a huge Rs. 80 trillion economy which is supported by the banking industry. Penetration of banking services is low but increasing. Current penetration is 3.8 ATM’s and nearly 8 bank branches for every 10,000 people. Today, in this article we share some of the new trends that are changing the face of the Indian banking sector.

  1. Social Banking:

Use of different social media platforms for bank transfers which also include international transfer is the next big thing that is likely to happened in the future Indian banking industry. Popular social media websites such as Twitter, Google+, and Facebook can be used to provide immediate money transfer between friends and colleagues.

Today, Facebook and Twitter can be used as a money transfer medium both locally as well as for international platforms. Some of the banks that currently offer this facility are ICICI Bank and Kotak Mahindra bank.

Home loan interest rates

 2. E-transfers:

Many alternative systems are now available for electronic money transfer without paperwork. These include NEFT for low value transactions and RTGS for high value transactions which are based on the IFSC code of each bank branch linked to the central server. Transfer typically takes less than few hours. More than 80,000 bank branches are now on this system.

In large metros, the Cheques are now cleared using image recognition technology wherein instead of the actual Cheque, only an electronic image of the Cheque is presented to the drawer’s bank for clearance. This makes it possible for banks to process Cheques and credit payee’s account on same day.

  1. Virtual Bank Branches:

Virtual branches are ones in which you visit on the bank’s official website and transact over a secure electronic platform. After this you can select your bank branch and finally you are taken to a completely virtual platform in which names and pictures of the employees are easily displayed. You can click on a specific image with whom you would like to interact and start online chatting via video interface, very similar which you can do in a branch. ASB Bank of New Zealand has already started this type of service which works similar to a real bank.

Useful Links: Use Free MyLoanCare Home Loan Calculator

Home Loan in Mumbai

Home Loan in Mumbai for ICICI, PNB, HDFC and other Banks

Mumbai has a reputation that may shock some – while home to 16 million people, 60% of the very same people are actually homeless, that is while they stay in Mumbai, they don’t have a proper shelter and stay in slums.  That’s largely because Mumbai is among the most expensive housing markets in the world.  Even with their sky high salaries, banking and corporate executives find buying homes in Mumbai expensive.  Thankfully, there are multiple options of homes available in Mumbai.  While those located in south or central parts of the city tend to be more expensive, there are more affordable options available in eastern suburbs and up north, away from the central business district.

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Mumbai is a vibrant market for home loans and contributes the largest proportion of high value home loan transactions compared to any other city in India.  With headquarters of most large banks situated in Mumbai, the city is among the most preferred destinations for home loans for banks.  Given the predominance of salaried individuals among home loan borrowers, banks offer some of the finest interest rates on home loans in Mumbai.  With its well organized system of property registration, Mumbai property transactions are mostly not so difficult.

Home loan in mumbai

However, Maharashtra (the state of which Mumbai is the capital city) imposes a 0.2% stanp duty on all mortgage transactions in the state.  Hence, borrowers must bear the burden of this levy when they take a home loan.  Note that in case a borrower decides to transfer his/ her home loan to a new lender, the stamp duty must be paid again. Under Maharashtra Apartment Ownership Act, permission to mortgage flat for availing home loan must be obtained from the society (or from builder in case of under construction flats). Thus, it is always preferable to compare best offers of multiple banks before finalizing a home loan in Mumbai. So, choosing the correct home loan at first instance is important and that’s where MyLoanCare helps Mumbaikars compare, select and apply loans online and conveniently through its online platform.

If you are looking for the best home loan service in Mumbai, contact 0124-4264004.