With the people buying their home even before getting married becoming a trend it is inevitable for you to take a home loan as the likelihood of you accumulated savings be sufficient enough to pay for the house is almost impossible. The amount of home loan which you are eligible is dependent on two factors.
One is the market value of the property being purchased/proposed to be mortgage to secure the interest of the bank. Since the bank is ultimately interested in getting the home loan serviced properly, it would be comfortable giving you the home loan requested only if your income is sufficient to warrant a regular and timely serving of the home loan.
And in order to ensure the timely servicing of the home loan the lender takes into account your net income. With prices of real estate having appreciated significantly recently, in practice it is the income criteria which ultimately determine your home loan eligibility. Since the home loan is repaid through monthly equated instalments (EMI), the lender takes into account the surplus money available with your month after month after meeting your day today expenses. In order to determine the surplus money the lender treats anything between 50% to 60 % as needed on average for meeting your day today expenses.
Therefore 40% to 50% of your income is treated as available for servicing of any loan taken by you. As the income goes up the proportion, in terms of percentage, available for servicing the loan also goes up as the expenses do not rise in the same ratio. In case your income is not sufficient for you to qualify for the required home loan, you can enhance your home loan eligibility by various legitimate and permitted means. Let us discuss those means.
Make some of your eligible relatives to join you as co-borrowers
In order to enhance funds available for servicing the home loan, you can enhance the pool of income by making some of the permitted relatives to be co-borrower to the home loan. Normally all Banks allow your spouse, parents and children as your co-borrower. Only a few banks allow brothers and sisters to be co borrowers due to succession issues which may arise in future. Even married daughters are also not entertained as co borrowers by some of the lenders for the same reasons.
For the purpose of being a co borrower your relative need not be co owner of the property but reverse in not true and all the co owners of the property have to join as the co borrowers for the home loan. Moreover it is not necessary that each of the co borrower has to service the home loan. However in case of failure of the primary borrower to service the home loan, the lender can ask the co borrower to service/repay the home loan.
Take home loan for longest available tenure
As compared to home loan, the monthly equated instalment for personal loans and motor car loans for the same amount are lower due to longer tenure for repayment. The home loans are generally offered for a tenure of 20 years. So as the home loan tenure gets longer, the amount of EMI becomes smaller. So even if you intend to repay your home loan within shorter period than 20 years, it is always advisable to opt for the home loan with longest tenure available.
Presently almost all the home loans are given under floater rate regime, the banks as directed by RBI and the housing finance as advised by National Housing Bank, are not allowed to levy any penal amount called prepayment penalty for any early part or full repayment of the home loan, so you can always close your home loan before completion of its initially fixed period without incurring any cost in terms of prepayment penalty.
For example Oriental Bank of Commerce provides home loan for a tenure upto 40 years depending on your age. For example with 1 lakhs monthly income and 40% of it being available to pay the monthly EMI, the loan eligibility @ 9% p.a. goes up from Rs. 31..58 Lakhs to Rs. 44.46 Lakhs when the tenure of the home loan is increased from 10 years to 20 years with the same income level.
Pay off your existing loan out standings
While determining the amount of the home loan available to you on the basis of your income, the lender take into account amount of the EMI presently being paid and your home loan eligibility thus goes down accordingly. The reduction in home loan eligibility happens even in cases where balance loan tenure is very small like 12months in case of personal loans or car loans. So it always makes sense for you to pay off your outstanding amount of any existing loan with limited EMIs payable.
As the home loan is repayable over a long period of time and since personal loans and car loans are for shorter, the incremental effect on your home loan eligibility will be substantially higher. For example if you have clear the 12 EMIs of Rs. 10,000/- on your personal loan taken @ 15% remaining payable, your home loan eligibility will go up by Rs. 11.12 lakhs @ 9% home loan taken for 20 years if you pay off the outstanding personal loan before making the application for home loan.
So to conclude in case your home loan eligibility does not fit into the money needed, you can take recourse to one or all the above options to enhance your overall home loan eligibility to fulfil the dream of owning a house.