Author Archives: Nikolai Kirtikar

10 – things to look before you say HOME LOANS
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Posted on February 3, 2012 by Nikolai Kirtikar

If you are looking for a home loan, you should be aware of the factors that can potentially hamper your chances of getting the long yearned home loan sanctioned.
Now you must be wondering if all my documents are in place then what could be the spoilsport? Not one but there are many factors which can turn out to be dampeners.

As it is getting a home loan can be a difficult process, as banks dig deep into not just in an applicant’s financial details but also his social standing. Moreover lenders also need full evidence for proving not only an applicant’s financial capability but also the intent shown in his past dealings before approving the loan application.

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Their assessment includes applicant’s income and expenditure pattern, savings history, past and current financial liabilities etc. besides stability and trustworthiness in other areas as well.

Say for example, application of individual employed in the same job for many years in a good company is likely to be processed faster than of an individual with a frequent job changes or that of a self-employed person.

In this article we have discussed those factors which are latent in nature but play a major role in a lender’s decision making process towards applicant’s home loan sanction.

1. Lack of job stability:
Lenders want to be sure that you are a low-risk customer and be assured of your ability to repay your home loan. Lack of job stability or frequent job changes implies that you are not consistent with your earnings and can be a potential risk for defaulting.

2. Carrying credit obligations:
Having large credit card dues and other loans will also have a significant impact on your home loan eligibility. Lenders determine your ability to take on additional EMI burden vis-à-vis your current net income. Larger the burden, lower the loan eligibility amount.

3. Frequent delays or defaults of Credit Card dues / EMI of loan:
Persistent delays or defaults can affect your credit rating. Defaulting on your credit card dues / loan repayments jeopardizes your ability to get loans or credit cards in future. Even a bad credit history of a co-borrower can ruin your chances of getting a loan.

4. Cheque Returns:
A small charge debited by your bank in the bank statement indicates that your bank returned a cheque issued by you. Number of such cheque returns can have a negative impact on your loan sanction. Cheque bounces, if cheques deposited by you are returned by the issuer’s bank, they will be visible in your bank statement too and again, banks have specific norms as to how many such returns are acceptable in a period of one year.

5. Number of new enquiries
Whenever you apply for a credit card or a loan, the card issuer / lender pulls your credit history from the CIBIL, which gets registered as an enquiry in your credit report. Excessive numbers of such enquiries indicates that you are “Credit Hungry” and in an urgent need of money. This makes the providers more cautious while evaluating your application.

6. Residential address on defaulter’s list:
If you are living in the same house as someone who was a loan defaulter, the chances of your loan application getting rejected are very high. The defaulter could be a relative, family member or a previous occupant. You will have tough time convincing the lender that the occupant is not related to you and in case of family member / relative, they are not dependent on you.

7. Staying Guarantor for Friends / Relatives
Always remember that you cannot withdraw your guarantee mid-way. In case your friend / relatives defaults in repaying the loan, it will severely hurt your credit history too, which means that if you need any loan or a credit card in future, your chances of getting the same could be jeopardized due to default of your friend / relative. The impact of standing a guarantor for a loan is the same as taking a loan your self.

8. Withholding facts in home loan application
It is not advisable to withheld facts from the prospective lender. In any case the banks will access to information regarding a potential loan borrower’s loans, repayment history, etc through credit bureaus such as CIBIL. It is advisable that you declare the information, to avoid the application being rejected.

9. Insufficient documents
Never apply for a loan without proper financial documentation for the lender, as it can delay your loan process or even cause the lender to reject the application.

10. Unsuitable profile
Every lender has its own set of guidelines / internal policies for sanctioning of loan. If your application falls under certain professions or income criteria or geographical area that is listed in their policy guidelines as not suitable for lending, then the chances of getting a loan is very slim, may be negligible.

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So as a home loan applicant you should take cognizance of these factors in order to deal confidently with your lender.

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Home Loans>>> How interest rates impact your eligibility?
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Posted on January 16, 2012 by Nikolai Kirtikar

Never before, home loan customers have gone through such turbulent times like last 20 months when Repo rates were revised 13 times. This has confused home loan aspirants no end.

But if you are the one who is determined to go ahead with your plans to buy a house, then first and foremost thing you need to do is to check your eligibility. How much loan you are entitled for? Once you know the eligibility amount then the clear picture will be before you that how much down payment will be sufficient. Down payment is in the range of 15%-20%.

So what impact will change in rates, implying rise in rates will have on your eligibility?

Though your eligibility is determined by several factors like your occupation (whether you are salaried/ self-employed), your income, the interest rate charged by the bank and the tenure of the loan. Along the line you will discover, the interest rate on the loan not only influences how much EMI you will pay each month but also influences the loan amount you are eligible for. An interest rate fall can often make that dream home within reach. Also, as you increase your loan tenure, your eligibility increases as well – but there is a limit. Most banks would not do a loan for more than 20 year tenure and also it is imperative that you are not more than 58 years as on the date of last EMI payment. Also, the maximum loan to value ratio is typically maintained by most banks at about 80 % to 85% where the total value includes property value, stamp duty and registration.

Over and above, various banks have their own methods and standards for calculating eligibility. You should do some shopping to check which bank is offering you higher loan eligibility. Adding up your spouse’s income may also be a good option to increase your loan eligibility.

Now that everything is in place and you are ready to roll, Lo & Behold…another rate rise announced by various banks. Now what will happen to your eligibility? How much amount you will be eligible for now? The rise in rates lead to drop in eligibility amount, thus they are inversely proportional.

Let’s see how it all works:

Lenders assess certain portion of your income as available for payment of EMI of your loans. Though there are no standard norms as it varies from bank to bank. But lenders do take into account factors like expense and investment pattern, credit card dues, etc. But normally the lenders will assume that around 40%-45% of individual’s net salary is available for payment of EMI to serve all the loans. The figure can be higher if you are in a high-income bracket.

Now let us look at the illustration table to understand how the changes in interest affect one’s eligibility.

Mr. Sharma earns a monthly salary of Rs. 1,00,000/-. He wants to take a home loan for purchasing a property and has no other loans outstanding loan on his name at present. Assuming that he has satisfied all other criteria and the bank has considered 40% of his net income as available for payment of EMI, hence he will have Rs. 40,000 p.m. for payment of home loan EMI.

The current rate of interest of the bank is 10.5% p.a. for 20 years tenure. Hence, Mr. Sharma will be eligible for Rs. 40.08 lakh at an EMI of Rs. 998 per lakh.

Assume the bank has hiked the rate of interest by 0.5% p.a. to 11% resulting in a hike in EMI from Rs. 998 to Rs. 1032. With the increase in EMI, the eligibility of Mr. Sharma has gone down by Rs. 1.32 lakh.

Similarly if the rate of interest goes down by 0.5% i.e. from 10.5% to 10% pa, the EMI / Lakh reduces to Rs. 965/- which will make him entitle for an increase in eligibility by Rs. 1.37 lakh.

Always keep in mind that your dues on credit cards and repayment of other loans will also have a significant impact on your home loan eligibility. So if you are planning to buy property in the near future on loan and are sitting on eligibility fence, be sure to control all your unwanted expenses and keep your dues on credit cards and other loans to bare minimum.

Till then, happy home buying!

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