Home loan eligibility and relevant charges

In order to be eligible for a housing loan, a number of factors are taken into account. Primary among them is the income of the borrower. Apart from income, the age, number of dependants, qualifications, assets and liabilities, stability and continuity of employment/business, past repayment record etc are also considered to assess the repayment capacity of the borrower.

There are a few ways to enhance loan eligibility. The banks recognize some additional sources of income and club them with your income, thereby enhancing the eligibility for the loan.

In the case of a salaried person, if he has some additional sources of income, they may be considered by the bank. The pre-condition is that the source of income should be somewhat regular in nature.
In case the spouse has an income, he/she should be a co-applicant. The additional income of the spouse will be included to enhance the applicant’s loan eligibility. In case there are any co-owners they must necessarily be co-applicants.

If an individual is staying with his parents, the income of the parents may be clubbed subject to certain conditions. Some banks allow inclusion of the fiancee’s income for sanctioning the loan along with the applicant’s income. However, the catch is that the disbursement of the loan is done only after the applicant submits proof of his marriage.

In some cases, if the applicant can provide additional security, he may have his loan eligibility enhanced. The additional security may include instruments like bonds, National Savings Certificates, fixed deposits and LIC policies. Normally, investment in shares is not considered for this purpose.

In case the applicant had taken a loan from a bank in the recent past, the bank also considers the repayment record of the individual. A good repayment record also enhances the eligibility of the loan amount.

Many banks waive off the requirement of having a guarantor. However, if one can provide a good guarantor, it may enhance the applicant’s credibility with the bank and thereby enhance the eligibility for the loan.

The final amount to be sanctioned will depend on the repayment capacity of the individual. Of course, this appraisal only sets the maximum limit which the individual can get as a loan. The amount that an applicant will be ultimately entitled to will have to conform within the limits fixed for each category of loan.

While deciding on what incomes can be included in the eligibility criteria, the bank would consider the certainty of these additional incomes and may include certain margin requirements as well – for example, 50 percent of salary of spouse or 40 percent of value of investments may only be eligible. The full amount of the additional income may not be considered. Also, the bank would take into account the additional expenses which may be incurred in earning the additional incomes.

Some housing loan charges:

Processing fee:
Processing fee is payable at the time of filing of the loan application. This is non-refundable and is charged to cover the costs of determining the loan eligibility of the potential borrower. It varies from 0.5 percent to one percent of the loan applied for.

File charges:
These include the documentation preparation charges. Some banks charge these to the borrower.

Legal charges:
These pertain to the legal evaluation of the housing documents. Some banks charge these separately.

Commitment charges:
These charges are payable if the loan is not drawn within a specified period of time after sanction.

Administrative fee:
This is payable on the acceptance of offer i.e. once the loan has been sanctioned. The amount is same as the processing fees – 0.5 percent to one percent of the loan sanctioned. Some banks charge both processing fees and administrative fees together.

Switchover charges:
In case a borrower decides to switch over from one bank to another, because the other is offering better terms, then some banks charge a fee for the switch. However, if the loan is repaid out of the borrower’s own funds, this charge may not be payable.