Housing Loan: Four tips for senior citizens seeking a home loan

By Ratan Chaudhary

Despite the secured nature of home loans, lenders follow a cautious approach while evaluating home loan applications of senior citizens. Here are some means that can help senior citizens improve the possibility of securing a home loan.

Include a co-applicant
Income constraints and uncertainty in life span are primary reasons for rejection of home loan applications made by senior citizens. One of the best ways to overcome these constraints is to choose a co-applicant for home loan. The co-applicant should be an earning member of the loan applicant’s family, with a stable income and better credit profile. As the primary borrower’s age would be high, the loan tenure offered by most lenders may be less.

Also, given that the income of the co-applicant is also factored in while evaluating the loan application, adding a co-applicant can increase the chances of loan approval and also assist the borrower in getting a higher loan amount. However, any delay or default in home loan repayment would have a negative impact on credit scores of both the primary borrower and co-borrower.

Go for lower Loan to Value ratio
Loan to value (LTV) ratio is the proportion of the property’s cost that is sanctioned as loan by lenders. The rest of the property’s cost has to be financed by the borrower in the form of down payment. According to RBI guidelines, the maximum LTV ratio of a home loan can go up to 75-90% of the property’s cost.

As a lower LTV ratio reduces the credit risk for the lender, senior citizens can enhance their home loan eligibility by contributing a higher down payment.

Making higher down payment would automatically reduce the LTV ratio as well as lower the size of loan amount required.

Assess your EMI affordability
The approval of your home loan application will depend on the lender’s assessment of your EMI affordability. Home lenders require the applicant’s EMIs, including the EMI of the new home loan and any existing EMIs to be within 50-55% of applicant’s net monthly income. Hence, home loan applicant needs to find his optimum home loan EMI accordingly before applying for the loan. While finding out the optimum EMI, the loan applicant should factor in his unavoidable expenses, health-related costs and monthly contributions towards crucial financial goals. Making a home loan application after finding the optimum EMI will enhance the chances of approval and reduce chances of EMI defaults due to unplanned aggressive repayment schedules.

Maintain a good credit score
Lenders will consider your credit score while evaluating your application. Those with credit scores of 750 and above are seen as financially disciplined and hence, with lower risk of credit default. Many lenders have started to offer lower lending rates for those having higher credit score.

The writer is head, Home Loans, Paisabazaar.com