5 ways to increase your home loan eligibility
Banks usually calculate the loan eligibility applying fixed obligations to income ratio (FOIR). On the prudent side, many banks restrict FOIR to a maximum 45-50 per cent of monthly income i.e. your fixed outgoing expenses (including equated monthly installments, EMIs, on the proposed home loan) should not exceed half your income.
For instance Vijay Chauhan, 28 year old engineer, earns a monthly income of Rs 50,000 and he is paying an EMI for his car of Rs 8,000 per month and no other fixed outgoing expenses. Hence a bank would typically consider Vijay eligible for a home loan where his EMI does not exceed Rs 17,000 per month making him eligible for a loan of Rs 14,00,000.
In a city like Bombay, for Rs 14,00,000, Vijay will barely be able to afford garage space. What Vijay needs to do is increase his loan eligibility.
Here's how he can do it:
1. Join hands with your better half
If your spouse is also earning, the income of your spouse can be combined and you could apply jointly for the loan. One can also club incomes with a parent and take a joint home loan.
2. Clear all previous balance
Since your eligibility is a function of your fixed monthly expenses, you could repay any previous loan to increase your eligibility.
3. Go in for a longer tenure loan
A longer tenure loan will increase the amount that you are eligible to borrow. Though this is not advisable since it increases the total interest that you will pay over the years.
4. Have an attractive CIBIL Score
Banks usually prefer customers with a really high CIBIL Score and they might be able to stretch the limit of your loan requirements if you demonstrate that you are a financially disciplined customers. So, make sure you always pay your bills on time and be part of that exclusive 800 + CIBIL Score club.
5. Bank on relationships
If you have a long standing relationship with the bank, you may be able to convince them about the increase in future income. Also if you work for a large corporation, the bank may give you preferential terms including higher loan eligibility.
The author is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India's first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.
Photographs: Rediff Archives