How does a bank decide your home loan eligibility?

Housing loans are sanctioned by banks mainly on the assessment of prospective borrowers’ monthly repayment capacity for the entire tenure of the loan and borrower’s credit-payment history provided by credit information companies like CIBIL about previous loans/credit cards etc. enjoyed by the customer from various financial institutions.

Also, Banks generally fix an upper age limit for home loan applicants, as the uncertainty surrounding the life span and financial condition of senior citizens makes lenders apprehensive towards lending them. Some banks lend to senior citizens for up to 70 years. In the case of the loan being applied with a younger person like a son/daughter, the bank may ignore the age limit of the senior borrower.

Loan repayment capacity is assessed by the bank based on your monthly disposable/surplus income, (which in turn is based on factors such as total monthly income/surplus less monthly expenses) and other factors like spouse’s income, assets, and liabilities, stability of income, etc. The borrower needs to contribute a certain percentage of the purchase value of the home from his own pocket as a loan margin.

The main concern of the bank is to make sure that you can easily repay the loan on time and ensure the end use of the loan is disbursed. The higher the monthly disposable income, the higher will be the amount you will be eligible for a loan. Typically a bank assumes that about 55-60 % of your monthly disposable/surplus income is available for repayment of the loan. However, some banks calculate the income available for EMI payments based on an individual’s gross income and not on his disposable income.

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