The HFI, on the basis of your repayment capacity, decides on your loan eligibility. Your monthly Income is taken into consideration by the HFI for this purpose. Every HFI sets certain norms on the amount of installment, as a percentage of the monthly income that can be accepted as being affordable. The HFI then uses these norms to arrive at loan eligibility.
If the co-applicant receives income from a regular source of income that has been consistent, then such income would be considered for the loan eligibility calculation. Every HFI has certain acceptable relationships of the co applicant for inclusion of income. For certain types of income, however, HFIs insist on regular Income Tax returns being filed every year on time For e.g. for tuition income or tailoring income. If these returns are available then it will be included. Interest income, however, will not be considered for calculation of loan eligibility.
If you have availed of a loan from any other bank, the repayment track record will be taken into consideration while determining your loan eligibility. A very good track record of repayment will prove favourable in deciding your repayment capacity. The loan installments of these loans will also be taken into consideration while calculating the FOIR as per norms of the HFI.
Some of the ways to improve eligibility are stated below:
- Include a co applicant to the loan whose income can be considered.
- Opt for a Step Up Repayment facility (Under this scheme your installment will keep increasing at periodic intervals thereby enhancing your loan eligibility) to avail of a higher loan. You may also be eligible to opt for a Flexible loan installment plan (Under this scheme your alternate sources of income after your retirement will be considered to enhance your loan eligibility if you are nearing your retirement age).
- If you are currently staying in a company accommodation and are planning to move out once you buy the property, you may become eligible for HRA from your company. If you provide proof of the HRA amount that you will receive on vacating company accommodation, include it in your monthly Income for calculating loan eligibility.
- Provide proof of cash income received.
- It’s advisable for you to buy a property where the agreement discloses the entire value of the house. This also help’s from any tax implications at a later point in time and in increasing loan eligibility. Especially if your eligibility is constrained by LTV (Loan to Value) norms.
- Include all costs as mentioned in the definition of Cost of Property if LTV is a problem.
The HFIs in India use the mortgage only as a collateral security. This is because the foreclosure laws (i.e. the laws to enable the HFI to recover the property in the event that the borrower defaults) are very time consuming and difficult to enforce. As a result the HFI relies more on your earning capacity and your ability to repay rather than your security value.
The HFI looks at your earning capacity both present and future to make a judgement call on your repayment capacity. Your existing obligations, your past repayment history, the quality of your earning (speculation and other non recurring income such as capital gains is normally not included in evaluating your repayment capacity) is considered. The HFI also gives due weightage to your age, experience, employer and your qualifications to arrive at your repayment capacity.
Most HFIs do not consider any income by way of cash unless supporting documents for the same are produced. This is because the HFI is not in a position to establish the genuineness of the cash income without proper evidence. However, if the proof for cash income is produced by way of either photocopies of the voucher or a statement from the employer that would reflect the same along with relevant entries in the bank statements, the HFI may consider part or full income based on the nature of such cash income.
Yes your loan eligibility will be affected if you under declare your income. This is because the HFI is not in a position to establish the genuineness of the undeclared income without proper evidence. However, if the proof for such income is produced, the HFI may consider part or full income based on the nature of such cash income. Under declaration of income is not advisable as it could result in Tax implications.
Most HFIs offer special privileges to self-employed professionals. They recognize the fact that in such cases, income is generally under stated and the earning potential of such individuals is higher that what has been disclosed. Every HFI has its own conditions regarding the type of professionals they would cater to. The HFI also decides on the qualifications required for such professionals to qualify for the relaxed norms for loan eligibility calculations.
Most HFIs allow only immediate relatives to co-own a property. This means that a parent-son combination and a husband-wife combination is only allowed. A minor, however, is not allowed to join in as a co-owner as he is not eligible to enter into a contract as per law and therefore the HFI cannot enforce the contract on a minor.
You can apply for a loan even if you have only 1-2 years of experience. However, if you are self-employed, most HFIs will take into account your past experience in the relevant field, your qualifications and the nature of your business. Only then will an HFI offer you finance for purchasing a property.
Normally, HFIs prefer to have the first right on the property for which they provide loan. However there are times when the customer who has availed of a loan from his employer (available at subsidized rates) may find the amount insufficient to meet his needs. To meet this shortfall he may want to approach a HFI. In such a case, the HFIs would go in for a pari passu mortgage or a second mortgage. In a pari passu mortgage, in case of default in repayment, both the employer and the bank share the right on the property as per the proportion of the loan amount disbursed by them. In a second mortgage the HFI only has second priority if it comes to recovering the money by way of disposing off the property. Second mortgage is acceptable only if the first mortgage lies with the President of India. (All central government employees mortgage their property with the President of India if they avail of a loan from their employer).
Yes, NRIs can avail of a housing loan to buy a property in India. However, the terms and conditions for a NRI loan are different than loans granted to Residents of India.
Yes, you can get a loan even if you have only a few years to retire. If you have a son who is working or if your wife has a few more years left for her retirement, you can make them a co applicant and take a loan. You can also opt for a FLIP scheme to enhance your eligibility.
No, you can apply for a loan even if you are single. However, some HFIs insist on a co applicant for the loan. This can be filled in either by a parent or by a spouse. In case you fail to provide either, you need to provide at least one Guarantor.
There is a limit on the IIR that a person can afford and this calculation varies from one HFI to another. The IIR is normally fixed by the HFI on the basis of their perception of your repayment capacity every month. The parameters on which the IIR is typically based are your actual salary details, qualifications, employer / business, years of experience, growth prospects, alternate employment prospects and sources of other income, if any. The IIR is normally restricted to about 40% of your monthly gross income.
The HFIs justify this 40% with the following assumptions. About 10% of your income is spent on other loans, if you have any or if you avail of one in the future. About 25% of your income gets deducted by way of statutory deductions and for investment purposes. You also needs to spend at least 25% of your income to meet your monthly expenses. This leaves back 40%, which is taken as your repayment capacity for this loan.