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Explained! How HFCs view loan applications

Saturday, January 13, 2018

With interest rates for home loans having dropped, this is probably the best time to buy your dream home. Nilesh Ghadge tells us more

If you are staying in a rented accommodation, you might be surprised to discover that the rent you are paying and the home loan installment are almost the same. In recent times getting a home loan is much easier than it used to be. Home loans have changed things in the residential real estate market, have empowered families to move into better lifestyles.

Making the right choice when it comes to buying a home and getting the best home loan is not just a matter of luck. One has to make deep research to get right home loan. Most important factor one should understand is how HFCs (Housing Finance Companies) look at loan applicants. After all the HFC is the one who provide us home loan to buy our dream home.

Minimum risk
Firstly any HFCs look at minimising risk at the time of processing any loan application. There are two distinct processes in a home loan. The first process entails working out your loan eligibility, based on your fiscal status, which is rated on the strength of the documents that you submit. Once the eligibility part is through, it means the HFC considers you a ‘good’ credit risk for that amount, and will sanction a home loan of that value, so long as the property stands true on the touch stone of documentation – which is part two: now, the property’s title has to be verified, and quite a few no objection certificates are needed. Only after this is completed can the loan be considered as sanctioned and ready for disbursal.

Technical aspects
Home loan eligibility is computed in multiples of your income either from salaries or from self-employment. Typically housing finance company operates at an installment income ratio of 60 % of the gross income after deducting fixed obligations, if any, serviced by you. This eligibility amount is then restricted to 80% of the property valuation. The home loan availed from HFC is repaid through Equated Monthly Installment (EMI), which has a component of interest and principal. With each installment you repay, the loan outstanding goes down.

How HFCs determine loan amount
Higher eligibility, lower interest rates on repayment and tax benefits are the three pillars on which home loans have provided a fillip to the buying of new homes. It is seen that many families buying a home in an area considered it ‘more expensive’ than what their budget would originally have allowed them to. It has empowered families to move into bigger homes, in locations that they earlier would only have dreamt of staying in. Determination of loan amount  is done after taking into account factors like repayment capacity, age, educational qualifications, stability and continuity of income, assets, etc. If the individual is married and is an earning member of the family, that individual can become the co-applicant. This will substantially improve both the chances of getting a loan as well as increase the total amount of loan taken.  

Avail tax benefits
It is not just those who do not have money to buy homes who find a home loan attractive - tax benefits mean that many a person who doesn’t quite need a home loan still finds it advantageous to take a loan and avail of tax benefits. In most fast-growth residential areas, this has been the norm rather than the exception.
Once a home loan seeker understand the point of view of  HFC to look at home loan applicant, the process of avail loan will be more smoother for him or her .

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