How Do Banks and Housing Finance Companies Decide on the Loan Amount?
As you prepare to buy a new home or
intend to build your dream home, more often than not it is the financial aspect
that calls for a closer scrutiny. The market is flooded with different kinds of
home loan schemes, each one seeming to be more attractive than the others and
it is herein that a prospective customer must lay emphasis on. As the risks in
offering a home loan is higher, the loans carry a higher interest rate and a
bigger down payment. But what are the criteria banks adopt to offer you a home
loan to enable you o buy it.
Usually, most banks and housing
finance companies give home loans up to a maximum of 85% of the cost of the
house. The 15%, sometimes called 'seed money' or 'equity', will have to be
provided by the loan applicant. The amount, for which the applicant is eligible,
is determined by the age, income, number of dependents, monthly outgoing and
repayment capacity. This varies from case to case.
The Bank/HFC assesses your
repayment capacity while deciding the home loan eligibility. Repayment
capacity is 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, liabilities,
stability of income etc. The main concern of the bank is to make sure that you
comfortably repay the loan on time and ensure end use. The higher the
monthly disposable income, higher will be the amount you will be eligible for
loan.
Typically a bank assumes that about
55-60 % of your monthly disposable / surplus income is available for repayment
of loan. However, some banks calculate the income available for EMI a
payment based on an individual’s gross income and not on his disposable income.
The amount of the loan depends on the tenure of the loan and the rate of
interest also as these variables determine your monthly outgo / outflow which
in turn depends on your disposable income.
Banks generally fix an upper age
limit for home loan applicants. Only if
you qualify in there criteria for giving loans, you can go for a home loan to
build your dream house.
