Home loan eligibility depends primarily on the income and repayment track record of the borrowers or individuals opting for the loan. This implies that if Ashish and Aparna are planning to take a loan, both their incomes will be considered. The lender will examine their income documents, credit history, CIBIL score, other commitments and liabilities, age, etc.
Banks believe that the ability to repay a housing loan is based on one’s income and expenditure pattern. Since it is difficult for banks to estimate the monthly expenses of each borrower individually, they use a predetermined percentage of one’s ‘net’ income, known as fixed obligations to income ratio (FOIR). Most banks restrict FOIR to a maximum 45-50% of the monthly income. This implies that higher the income, higher the amount that can be spared for paying the home loan EMI. Also, if the tenure is longer, the EMI will be lower. Invariably, for the same income, the eligibility for a longer tenure home loan will be much higher.
Any outstanding loans will tend to reduce the couple’s loan eligibility. So, prepaying any existing loans in full or part will help. Typically, if one partner’s income is insufficient, the couple can opt for a joint loan, which helps increase their loan eligibility. However, home loan is a long-term commitment, typically 20-30 years. They need to be sure about the continuity of both their incomes to be able to jointly take up such a long-term EMI commitment. It is understandable that the couple is keen to buy a house of their own, but they must be sure that they do not over-commit in their enthusiasm and make hasty financial decisions. They must make an assessment of their finances before choosing a property.
