Loan Eligibility in broad terms means your ability / capacity to avail the loan from lender banks/ NBFCs. It the measurement tool of the banks to decide to lend what quantum of funds on the basis of your financial credentials (Financial credentials means your income, other obligations, additional source of income, etc. i.e. all financial figures associated with you), subject to your current age that decides your loan tenure. However your income and age is not the only criteria for determining your loan eligibility. Your loan eligibility is also largely determined by the combination of other factors such as your employment details, banks current interest rates, type of loan and its tenure you wish to opt for, CIBIL scores and on the market value of the property.
Banks/NBFCs have their own calculation for eligibility criteria but the formula in general remains same for all, which is:
((Net income per month X 60% FOIR) – Obligation/Deductions) ÷ Per lakh EMI subject to market value of the property i.e. LTV
LTV – Market Value of the property X (60%-90%)
Where, FOIR stands for fixed obligation against income ratio and Obligation/Deductions means EMIs of other loans if any and LTV means Loan To Value.
Your loan eligibility is the final outcome of the lower of the two– i.e. your income eligibility and the LTV factor of the property.
How to increase the loan eligibility:
1) By adding an eligible co-applicant to the loan application.
2) By adding your additional variable income from other sources, such as a property rental income, agricultural income, perks from company, etc.
3) By repaying your existing loan and other debt obligations such as a personal loan or credit card outstanding balance.
How do banks increase the loan eligibility?
1) By increasing your FOIR percentage for income eligibility and
2) By increasing the market value of the property.
Note: Banks may consider increasing your loan eligibility only subject to your clear profile and good CIBIL score.
As per the RBI guidelines the LTV percentage cannot be altered/ increased to increase your eligibility against property funding. However market value of the property can be increased to increase your eligibility against property funding by adding car parking to the market value, by adding cost of amenities (club, gym, swimming pool, garden, etc) to the market value.
Other Surrogate products for eligibility calculation
Apart from the standard way (formula mentioned above), banks also have other surrogate products specially designed for calculating your eligibility so as to make you eligible for the loan.
1) Banking product: Specially designed only for self employed you, where your income eligibility is assessed based on your banking transaction history reflecting in the account statements. For higher eligibility requirement you may also provide multiple bank accounts. (There is no capping on the number of accounts which can be considered). And importantly you are not required to submit your ITRs or financials under this product.
2) Gross Turnover Product (GTP): This product is again specially designed for self-employed you only. Under such product your income eligibility is calculated on your Gross Profits (lower of actual or imputed) which increases your eligibility to 3.3 times higher as compared to the normal eligibility calculation.
3) Salary Multiplier: This is a Multiplier Product designed only for salaried you for availing your first home loans. The banks has their categorized list of companies and only those you who come under this specified bank’s companies list are eligible for this product of salary multiplier. This product does not consider any other existing obligations of you while calculating your eligibility.