As home loan interest rates continue to drop, more investors are now eyeing real estate investments. Moreover, real estate prices too seem to be more stable and affordable when compared to a few years back, presenting an additional incentive especially to those who are planning to buy their first home. Given this, it is a fact that not everyone who approaches a bank gets approval for the desired loan amount. You might have a good credit history, no other liabilities and a long service period, but still if you are not able to get the loan amount you wish, here are five tips that may help you.
1: Club incomes: If both husband and wife are working, there is a good case to combine their incomes together while seeking a home loan. But if you have already clubbed the income of your spouse, and are still not eligible for the desired loan amount, you have an option to add more co-applicants.
For example, let us assume Rahul and his wife earn Rs 60,000 a month as their combined income. Their maximum loan eligibility for 20 years is around Rs 30 lakh. In case he requires Rs 40 lakh as loan, Rahul can combine the income of his 60-year-old father who earns a monthly pension of Rs 40,000, to be eligible for the required loan amount.
So apart from your spouse, you can make your parents (if they are working or earning pension) or children (if they are employed) as co-applicants. In many cases, you can also make your siblings as guarantors to enhance your loan eligibility, but under special conditions.
2: Buy from a reputed builder approved by the bank: Aishwarya’s problem was different. Being a single parent, she ran the family and was left with little savings. However, buying a house of her own was her first goal, as she could not afford the high rent in the city. The property she shortlisted cost around Rs 36 lakh. As banks usually fund up to 85% of the property value, she was eligible only for Rs 30 lakh as loan. But, she was able to raise only Rs 4 lakh as down payment and wanted at least Rs 32 lakh as loan. Luckily, the project she chose was an approved one and the builder had a good relationship with the bank. The bank accepted her request to consider a higher loan-to-value ratio (LTV).
Banks usually consider 85% LTV for loans. But if it is an approved project by the bank, or if they have a good relationship with the builder, they can consider up to 90% LTV.
Banks often worry about the repayment of their loan when approving loans. So they offer loans only as long as you are in your service
3: Seek a higher tenure home loan: Since home loan eligibility is calculated depending on the monthly repayment capacity of the individual, the higher the tenure, the smaller is the EMI. This effectively means that increasing the tenure of the home loan can increase your home loan eligibility.
As an instance, in Rahul’s case above, if he is taking his and his spouse’s income only and applies for a loan for 15 years, his eligibility would be Rs 28 lakh. For 20 years, it is Rs 31 lakh and for 25 years, its Rs 33 lakh. If he has 30 year service left, he can go a for 30 years tenure and get Rs 34 lakh (given the loan is at 10% interest rate and the fixed obligations to income ratio (FOIR) is taken at 50%). Taking a longer tenure however has a downside. A longer tenure means paying an extra interest, and thereby increasing the total cost of the loan.
4: Consider pension: Banks often worry about the repayment of their loan when approving loans. So they offer loans only as long as you are in your service. But, if you are a government employee, or having pension, you can request the bank to consider your pension too and increase your loan tenure to avail more.
Suppose you are eligible for 10 years loan only as per your remaining service period. You can ask the bank to consider 20 years tenure, considering your pension too. Doubling the tenure means double the eligible loan amount.
5: Offer life insurance as collateral: The eligibility for home loan can be increased if one provides collateral in the form of life insurance policy. Offering life insurance policy as collateral safeguards the bank’s financial interest.
While some banks consider loan against life insurance policies as separate loans, some others take it as collateral along with the existing home loan and enhance your loan eligibility. For instance, assume that you have a life insurance with Rs 50 lakh as sum assured, and you have been servicing it for the last five years. Banks would consider this as collateral. However unlike a separate loan against life insurance, deciding the eligibility based on the life insurance policy is completely up to the credit manager of the branch.
While some banks consider a certain percentage of the sum assured, some banks take a certain percentage of the total premium paid. However, to consider a policy, most banks would consider it only if it is at least above 3-5 years old and paid promptly. Also banks are reluctant to consider policies of private insurance companies.
Written By: Adhil Shetty is the CEO of BankBazaar.com