You dream of owning a home one day. It is only that the prospect of getting a home loan pulls you back to reality! So, to realise your dream, you need to ensure that your home loan application is error-free. Take a look at the documents required for home loan approval. These documents can determine the outcome of your loan application.
Many Factors Affect your Home Loan Eligibility
Various factors determine your home loan eligibility such as your income, age, and expenditure patterns. It is not possible for lenders to estimate the monthly expenditure of every loan applicant. Hence, they use a pre-determined rate of percentage of the applicant’s net income. Most lenders will restrict that percentage to 45–50% of the applicant’s monthly income.
Lenders cover up to 80% of the property cost; the loan applicant has to bear the balance cost as a down payment.
Valid Property Documents
A lender could reject your application if you fail to provide valid property documents.
These include the following:
- The sale deed/agreement of sale with the builder (in original)
- A letter of allotment by the housing board/private builder/building society
- Receipts in original of the advance payments made towards the purchase of the apartment
Your Monthly Income
It is better to stick to a lower loan amount than struggle to repay high EMIs. You can use a housing loan EMI calculator to check how much you can afford as monthly EMI against different tenures and interest rates.
Lenders determine the loan amount by looking at your monthly income. In fact, they may even provide you with special pre-approved offers. But if you are getting a loan, you will need to provide the following income-related documents
Salaried individuals need to submit the following documents:
- Last three months’ salary slips
- Last six months’ bank statements
- Form 16/income tax returns
For business owners/self-employed professionals, the documents are as follows:
- Last three months’ salary slips
- Last three years’ income tax returns with computation of income
- Last three years’ CA-certified/audited balance sheets, and profit and loss statements
- Proof of business/certificate of practice
You must ensure a healthy balance between your EMIs and the housing loan tenure. Too short a tenure means a high loan EMI. If the tenure is too long, you will have to pay extra on the interest component of your loan.
Credit Score and Credit Report
Lenders check your repayment history and expenditure patterns through your credit report. You do not have to submit your credit report to the lender, but you should check that it is error-free. A credit score of 700 and above is ideal. A poor credit score is a red flag for most lenders; it could result in a high interest rate. Your loan application could be rejected due to a bad credit history. Try to improve your credit score before applying for a home loan. Any loan rejection will further reduce the score.
If your credit score falls below 700, you can go for a loan with a non-banking financial company (NBFC).
Valid Identity, Age, and Address Documents
Home loans are given for huge amounts. Lenders want to ensure that the money is going to the right person. To determine your legitimacy, lenders will ask for proofs of identity, age, and address. Your age will also determine the given tenure of the loan as lenders will want you to repay the loan before your retirement. If you are too close to retirement, your application could be rejected.
Here are some of the required home loan documents to prove your identity, age, and address.
Proof of Identity
- Passport
- Aadhaar card
- PAN card
- Driving license
- Ration card
- Voter’s ID card
- Employee ID
- Bank passbook
Proof of Age
- Aadhaar Card
- PAN card
- Birth certificate
- 10th class marksheet
- Bank passbook
- Passport
- Driving licence
Proof of Address
- Bank passbook or bank account statement
- Voter’s ID
- Ration card
- Passport
- Last two months utility bill (telephone, electricity, water, gas)
- LIC policy/receipt
- Letter from a recognised public authority verifying your residence address
Summing Up
Before applying for a home loan, make sure all your documents are in order. Doing so will help you gain valuable points with the lender.
