Financial institutions look into several criteria while determining if a borrower is eligible for a home loan. Additionally, along with the approval, these different criteria also decide the rate of interest which is offered by the lender on this loan.
While borrowers should select a loan offer by comparing different options with a home loan eligibility calculator, they should also check these criteria discussed below –
Debt-to-income ratio
Financial institutions check the debts along with the income of the borrower to ensure that adequate funds are available to repay this new loan. A debt-to-income ratio lower than 50% is preferable for borrowers.
Credit score
Borrowers must have a minimum credit score of 750 to avail the best terms on a home loan. Decided by repayment habits of loans and credit cards, this score is checked by financial institutions to gauge the risk in lending a specific individual. This score also impacts the interest rate of the home loan.
Source of income
Source of income is a crucial parameter that is checked by financial institutions since it represents the financial stability of a borrower. Typically, government or public sector employees, as well as those working at reputed MNCs, are considered less risky.
Also Read: Ways to Reduce Your Home Loan Burden
Loan amount
The amount of financing a borrower applies for also decides the approval and interest rate offered by a lender. Borrowers should use a housing loan eligibility calculator and check the amount they are eligible for.
Along with the above pointers, potential borrowers should also check specific eligibility and document requirements of a lender. Keeping the documents ready can save time during application.
