Home Loan Eligibility Guide for Beginners
10 Feb 2021
Home Loan Eligibility Guide for Beginners
Buying a house in today's real estate market may seem expensive, but it is not impossible. With Bank of Baroda's Home Loans, you can buy a ready-to-move-in home, an under-construction home or a plot of land and construct house whithin 36 months. You can even construct a house on any piece of land you own. The bank also provides the necessary finance to renovate your existing property. However, your loan is sanctioned only if you fit the bank's Home Loan eligibility criteria. Let's understand what is Home Loan eligibility, and the various criteria considered by the bank.
What is Home Loan Eligibility?
Home Loan eligibility is nothing but an assessment of your loan repayment capacity. To assess whether you can afford and then repay the loan in a timely fashion, the bank considers several factors. These include your age, your income, your credit scores, the type of loan you are applying for, among others. Based on these factors, the bank determines the maximum loan amount you can get. Some factors also help you procure a lower interest rate on your Home Loan. Let's take a look at each of these criteria individually.
Home Loan Eligibility Based on Salary / Income
Your salary is the first criterion on which the bank assesses your Housing Loan eligibility. You should be able to provide valid proof of your income to eligible for this loan. You could be a salaried employee, a self-employed professional or a business/practice owner such as a lawyer, doctor, chartered accountant, etc. Essentially, it would help if you had a regular income to be eligible for a Bank of Baroda Home Loan. What's more, you can apply for the loan jointly with another immediate family member (check with the bank for eligible joint holders), who is also stably and securely employed, to improve your eligibility.
The bank typically has a standard interest rate and loan amount allowance based on your income bracket. The interest rate is linked to the Baroda Repo Linked Lending Rate or BRLLR and varies as per your credit score. [For instance, if your net monthly income is Rs. 25,000 and you can produce credit scores exceeding 750 points, you may be eligible for a maximum loan amount of Rs. 15 lakh at interest rates starting at 6.85% p.a*. On the other hand, if you have good credit scores and your net monthly income is Rs. 75,000, you can get a maximum loan amount exceeding Rs. 57 lakh.] You may repay the loan in tenures lasting up to 30 years.
You can use the Bank of Baroda Home Loan eligibility calculator to check the maximum loan amount you can get based on your salary.
Home Loan Eligibility Based on Age
Your age is another crucial Housing Loan eligibility factor that banks consider. Typically, the bank requires you to be at least 21 years of age to apply for the loan. Also, your age at the time of final EMI repayment should not exceed 65 years. Your chances of getting a Home Loan sanctioned are higher when you are younger; typically in your twenties or thirties. This is because, in this age group, you would have established your career securely, and you would have the capability to repay a high-value, long-tenured loan like a Home Loan. Furthermore, when you apply for a loan in your twenties or thirties, you still have several years of gainful employment ahead of you. You would be drawing a monthly income, which helps you repay your EMIs on time.
When you apply for a loan in your 40s, you may be able to make a higher down payment or pay a higher EMI amount. You need to assess what works best for you and then apply for the loan accordingly.
Other Factors determining Home Loan Eligibility
Apart from your salary and age, several other Home Loan eligibility criteria that the bank evaluates while considering your loan application. They are as under:
The Number of Years You've Been Employed
Being employed for over three years with the same employer conveys to the bank that you are stably employed.
The Details of Your Employment
Typically, the bank consults your employer to assess your claim of employment. It also asks you to provide documents such as your offer letter, monthly income statements and salary slips, etc., to determine your eligibility. These documents help the bank evaluate your employer's reputation and decide the loan amount and interest rate you can get.
Your Credit Scores and Financial Management
Your credits score is perhaps the most crucial of all Home Loan eligibility criteria. It is nothing but an assessment of your financial behaviour and your creditworthiness. Your credit score helps the bank evaluate how you spend your money and your income-to-credit ratio, i.e., how often you use your credit card and whether you repay your credit card bills on time, whether you are repaying your other existing loans regularly. It would help if you typically had a credit score of over 775 points out of a possible 900 points to get a low-interest Home Loan. The bank may also sanction your loan request if your credit score is in the 701-774range, but you may be charged a higher interest.**
The Value of the Property You Intend to Buy and the Loan-to-Value Ratio
While the bank finances a significant portion of the value of the property you want to buy, you have to provide a down payment. Typically, you have to provide at least 10% of the property's value as down payment, and the bank finances the remaining 90 per cent. This is known as the Loan-to-Value ratio. With Bank of Baroda, you can get finance of up to90% for Home Loans up to Rs. 30 lakh. You can get up to 80% finance for loans in the Rs. 30 lakh to Rs. 75 lakh range. If you need a loan exceeding Rs. 75 lakh, you have to pay a down payment of up to 25% of the property's market value and can get loans up to 75% of the value of the property.
Tips to Enhance Your Home Loan Eligibility
While you cannot change the bank's Home Loan eligibility criteria, there are several ways in which you can enhance your Housing Loan eligibility. They are as under:
Repay Any Existing Loans You May Have
Your credit scores are reduced if you have any existing loans while you apply for another. As such, it is better to repay your current loans and then apply for a fresh Home Loan. Repaying existing loans demonstrates to the bank that you had taken on and repaid loans in the past, and makes you a credit-worthy applicant.
Apply Jointly With A Co-Applicant
When you apply for a Home Loan jointly with a co-applicant, the bank considers both your incomes. It also checks the credit scores and repayment behaviour of both applicants jointly. If both of you have credit scores exceeding 701 points, your eligibility will be enhanced, and you can even get low-interest loans if credit score is further higher.
Opt For A Longer Tenure Home Loan
Your Home Loan eligibility increases with a higher loan tenure. A higher tenure allows you to repay the loan in smaller EMIs. It also ensures the bank that you would be employed for a longer duration, enabling you to pay your EMIs on time.
Calculation of Eligibility for Home Loan
Now you can calculate your Housing Loan eligibility even before you apply for the loan. You can use an online Home Loan eligibility calculator, available on the Bank of Baroda website. Enter details such as your age, income, monthly expenses, other loans EMIs, and the value of the property you intend to buy. Once you submit these details and click on enter, the calculator computes the maximum loan amount you can get. You can apply for a Home Loan online, .
So, visit the Bank of Baroda website to check if you are eligible for a Home Loan. Apply for your Home Loan online and start the process of becoming a property owner!
*Subject to change at Bank of Baroda's discretion.
Education Loan Tax Benefit
All You Need to Know About Education Loan Tax Benefits under Section 80E of the Income Tax Act
Investing in a sound education has always been considered a worthy investment. A good degree can set you on the path of financial independence. But the costs associated with achieving a higher education degree cannot be ignored. As the cost of education continues to sky-rocket, students have little choice but to take out an education loan. Thankfully, the government offers some respite on education loans in the form of education loan tax benefits. Here’s all you need to know.
Section 80E of the Income Tax Act of 1961
Students intending to take a loan for higher studies, also known as an education loan, can avail tax deductions under Section 80E of the Income Tax Act of 1961. This section of the IT Act specifically caters to education loans. Students may avail education loan tax exemptions for pursuing higher education in India or abroad.
Students who’ve opted to go abroad for higher education often incur higher expenses as compared to those pursuing higher degrees in India. Apart from paying high tuition fees, they also have to incur costs such as boarding or dormitory charges, travel costs, purchasing study materials and equipment (engineering boards, laptops, etc.) Keeping all these expenses in mind, the government introduced Section 80E of the IT Act. Under this section, students can avail some relief in repaying the interest component of their education loan.
What is covered under Section 80E?
Under Section 80E of the IT Act, students can avail income tax benefit on education loan, when they become taxpayers. The tax benefit is extended on the interest portion of their education loan under Section 80E. The 80E specific deduction does not apply to the principal loan amount. While calculating the annual taxable income, students can deduct the entire amount paid as interest, while repaying the loan, i.e. the interest amount paid against the education loan is not taxed. You can avail deductions on the entire interest component of the loan.
Terms and conditions under Section 80E
To avail education loan deduction in income tax under Section 80E, you need to consider the below terms and conditions:
You can avail tax deductions on education loans taken on behalf of your children (biological and adopted) or your spouse.
Under 80E, you may also avail the deduction if you are the legal guardian of the student.
You can avail 80E deductions only if you’ve applied for the loan from a recognised financial institution like a bank or an NBFC, or a charitable institution.
You may not avail 80E deductions if an employer or a relative sanctioned the loan.
80E deductions are applicable only for individuals availing the loan and not Hindu Undivided Families (HUFs). Companies or firms can also not avail 80E deductions.
Final word: Today, most students have to rely on education loans to get into a good school. Keeping this in mind, the government also offers student loan tax deductions of ₹150,000 on the principal loan amount under Section 80C of the IT Act.
Home Loan Principal & Interest Rate Explained
Home Loan Principal & Interest Rate Explained
Bank of Baroda offers a wide variety of Home Loans that you can choose from, based on your requirements. The bank offers loans of several lakh to a few crore in various Indian cities and towns. With its streamlined, online process, you can now apply for the loan online through the bank's website. You can even get a pre-approval for the loan, select a property based on your eligibility, and submit your documents online. But before you take on a Home Loan, you should familiarise yourself with the various terminologies associated with the loan; two of which are most crucial. We are talking about the Home Loan principal amount and interest rates. Let's understand these in detail.
What is the Home Loan Principal Amount?
To put it simply, the Home Loan principal is the amount of money financed by the bank to help you buy a property of your choice. The property in question could be cost of newly constructed, a pre-owned property, or an under-construction property. It could also be a plot of land and construction thereon you want to buy. The bank also offers you the necessary finance to construct a property on a piece of land you want to buy, renovate or remodel your existing property. Such financing also falls under the umbrella of the Housing Loan principal amount.
As such, the Home Loan principal amount is nothing but the original amount of money you borrow from the bank as a loan. It is the actual loan amount. Depending on your eligibility, income, and the value of the property you wish to buy, the bank offers maximum financing of 75 to 90 per cent of the property's market value as the principal loan amount. You have to provide the remaining 10 to 25 per cent of the property's value as a down payment.
Example to Help Understand Home Loan Principal Amount
Let's say you want to buy a 2BHK in Pune City. The cost of the flat is Rs. 1 crore. After assessing your eligibility, the bank decides to offer you a loan amount of 75%, while you have to provide the remaining 25% as a down payment. As such, you would be eligible for a loan of Rs. 75lakh and you have to make a down payment of Rs. 25lakh. Thus, your principal on Housing Loan would be Rs. 75 lakh. This amount reduces with every EMI you pay towards Home Loan repayment.
Difference Between in Home Loan Principal & Interest
Having explained what is Home Loan principal, let's understand what interest rate on Home Loans is, and how it differs from the principal loan amount.
Interest is the amount of money the bank charges on principle of the amount loaned to you. The interest rate on a Home Loan is typically expressed as a percentage and calculated as the Home Loan interest.
What is EMI
The EMI you pay towards your Housing Loan comprises both the Housing Loan principal amount and the interest amount. With every EMI you repay, the principal amount reduces. Interest is charged on every month on remaining outstand principal. So gradually with repayment of every EMI, original principal amount is reduced and according every month amount of interest is reduced. Thus in later EMIs, portion of principal is higher and it increases further with every payment of EMI. In the beginning, a significant portion of the EMI goes towards interest repayment, while a smaller portion goes towards repaying the principal amount. This becomes apparent through the bank's amortisation schedule that shows you how your loan repayment is calculated. The amortisation schedule is nothing but a tabular representation of the loan repayment, highlighting the amount going towards the principal amount and interest repayment each month, even though the amount of EMI remains unchanged. As per the amortisation schedule, the amount going towards repaying the principal amount increases progressively every year. You can easily calculate the same with the help of an online tool known as the Home Loan EMI calculator.
So, if you're planning to take on a Home Loan, make sure you understand the concepts of Home Loan principal interest rate and EMI thoroughly. You can now apply for Bank of Baroda Home Loans conveniently. Click here to get started!