Checking loan eligibility before making the application

You can get a loan only as per your eligibility for the same. Checking the eligibility helps in making the right decisions about taking the loan.

If you ask a person living in rental accommodation what their biggest dream is, chances are high that they will reply, ‘Buying my own house’. This is a dream also for those about to get married and wishing to move out of their parents’ home. However, the dream remains unfulfilled for many people who struggle to cobble together the funds to buy a home.

Real estate prices are currently at their zenith. At the same time, demonetisation has resulted in several job cuts and individuals pulling out of expensive purchases. Hence, the industry is extremely sluggish at the moment. Most potential buyers are unable to raise the funds even to make a down payment on their dream house – but this situation need not be so dire. In fact, now is the best time to buy a house.

Your dream to buy a house can easily be fulfilled by taking a home loan. However, just like each person’s requirements are different, so are the stipulations of each loan product. The primary stipulation one must fulfil is that of the home loan eligibility. 

What does loan eligibility mean?

Every person who makes a steady income, whether from a job or business, is eligible for a loan. However, one person may be eligible for a higher loan than another. 

The loan amount you get is calculated basis your gross monthly income, whether you pay any other loans, the tenure you seek and rate of interest being offered by the bank. The online loan eligibility calculator computes these figures and arrives at the closest approximation to the loan amount you can expect to get, as shown below:

Using the loan eligibility calculator

Using the loan eligibility calculator takes away the mystery from eligibility calculations. It computes the figures in real time to give the applicant the expected loan amount. Knowing the loan amount beforehand helps you know how much money you need to raise from your own reserves, and what your house budget range is. This helps you shortlist the properties that fall within this eligibility zone instead of looking up more expensive properties.

The best loan calculators (as shown in the illustration above) also show the applicant the potential year-by-year repayment they may make once they take the loan from the bank.

Hence, the loan calculator takes away the guesswork from home loan calculations.

Loan against property: The best solution to raise funds

It is advisable to raise money against an existing property instead of selling it or liquidating another asset. We explain why.

At a time when India’s real estate market is faring quite poorly owing to very high prices, it would appear that potential home buyers would have a field day picking through unsold housing stock. However, buyers still await a price correction. 

Thus, it is quite an achievement if one can buy a house in today’s day and age. Owning your own property offers several key advantages. Not only is it a safe asset that appreciates in value over time, it offers quick liquidity when one needs to raise money. There are a couple of good avenues in which an owned property offers financial succour in an emergency. First, the owner may decide to sell it for a profit. Second, the seller may mortgage the property to raise money against its current market value. This second option is known as the ‘Loan against property’ and it is being availed of by a growing number of property owners in India today.

How does the loan against property work?

The loan against property is simply a mortgage loan granted against the current market value of the property. It is extended towards both residential and commercial owned properties. The property is pledged to the bank for the duration of the loan. The bank first evaluates the property for its documents, stability, current market value and owner’s credentials. If all the documentation is found to be in order, and if there is no other mortgage loan on it, the bank grants the loan against property to the owner.

Is it beneficial to take this loan?

Yes, it is. Consider the following reasons why:

• You only pledge the property to the bank for the duration of the loan – the property ownership is not transferred to the bank, and all earnings on it (rental income, for example) are still passed on to you.
• There is no need to sell the property to get access to emergency funds. You can also take this loan against a property that you currently reside in. The only stipulation is that the property must be a freehold title.
• The best banks in India offer these loans for a period of about 10 years, which may be extended at the bank’s discretion.
• The loan against property is more expensive than a home purchase loan and cheaper than a personal loan. Premier banks in India offer loan against property interest rates in the range of 11% to 14.5%.
• The bank does not concern itself with the reason for borrowing the loan against property. Hence, the money may be used for personal or professional emergencies.
• If you are unable to repay the loan, you can sell the property to repay the unpaid balance.