Despite a home loan being a secured form of loan, the uncertainty surrounding senior citizens' income and life span often makes lenders apprehensive of lending to them.
Dreams have no age limit, especially when it comes to realizing your dream of owning a home. Although most individuals try to achieve this goal during their work-life years, it’s not the end of the road for those who have already retired or are nearing retirement.
Despite a home loan being a secured form of loan and its eligibility criterion getting broader and more flexible, the uncertainty surrounding senior citizens’ income and life span often makes lenders apprehensive of lending to them. Here are five points which may assist those in 60s to successfully avail a home loan:
1. Are you eligible to take a home loan in your 60s?
Availing a home loan to fund your home purchase is relatively easier when you are young, in comparison to doing so in your 60s. Lenders are more confident about your repayment capacity when you are younger, largely due to higher number of active work life years left, along with the possibility of income rise in the future, thereby boosting your overall loan eligibility.
However, this doesn’t imply that borrowers in their 60s are corned out and not eligible for home loans. Some lenders provide home loans to senior citizens, with the condition of maximum age at the end of loan tenure usually being up to 70 years, implying a maximum tenure of 10 years.
On the flip side, senior citizens are often granted a lower loan amount with shorter tenures compared to lower age groups. Moreover, lenders prefer income source such as rental income as the primary income, rather than borrower’s pension, while evaluating a senior citizen’s home loan application.
2. Take a joint home loan to boost loan approval chances
Uncertainty of life span and income constraints are the primary reasons behind rejection of most senior citizen’s home loan applications. A great way to overcome both these constraints is by opting for a joint home loan, preferably with an earning member who has stable income. Adding such a co-applicant would enhance your loan eligibility and boost loan approval chances as well. Moreover, co applying with a woman, such as your wife or daughter, would help you fetch lower interest rates.
Before adding a co applicant, remember that lenders consider repayment capacity as one of the vital parameters while evaluating your loan application. So make sure your co-applicant’s FOIR (Fixed obligation to income ratio), i.e. proportion of income already being paid out as credit card payments and loan EMIs, doesn’t exceed 50-60%.
3. Opt for lower LTV ratio to enhance eligibility
Loan to value (LTV) ratio is the proportion of property’s value sanctioned as loan by the lender. As per RBI guidelines, the maximum LTV ratio that can be provided by banks is up to 75-90%, depending on property’s cost. Lenders fix this ratio on the basis of their risk assessment and credit profile of the loan applicant while evaluating the loan application, implying that borrowers who are considered less creditworthy are often offered lower LTV ratio.
Borrowers in their 60s can enhance home loan eligibility as well as loan approval chances by contributing a higher amount from their own pocket, in the form of down payment. Higher downpayment would automatically lower the LTV ratio and reduce the size of the loan amount required.
4. Check your loan eligibility before applying
Whenever you submit loan or credit card application, lenders fetch your credit report from the concerned credit bureaus to assess your credit profile. Such lender-initiated credit checks are known as hard enquiries, and such enquiry shows up in your credit report and may pull down your credit score by a few points. Even if you have displayed disciplined repayment behaviour in the past, multiple loan applications can hurt your credit score, which in turn would decrease your loan eligibility and loan approval chances.
To avoid this, make use of online loan eligibility calculators before applying for a home loan with any lender. And doing so through online financial marketplaces would not only assist in assessing your loan eligibility, but also enable you to compare and choose amongst various lenders, according to your financial requirement and eligibility.
5. Use online EMI calculator to choose an affordable EMI
Even if you are eligible for a home loan in your 60s, opting for affordable EMIs is crucial to ensure comfortable repayment of the home loan. Presence of an online home loan EMI calculator tool can prove to be highly beneficial in calculating EMIs, according to the chosen tenure, loan amount and applicable interest rate. The tool would also assist the senior citizens in planning their financial outflow and prepare for the loan repayment in the form of EMIs. While using the EMI calculator, adjust the loan tenure as per the loan amount and interest rate, and then finalize the tenure which corresponds to the EMI amount which seems affordable. Borrowers can opt for longer repayment tenures to lower their monthly payout in the form of EMIs, and prepay the loan whenever they have surplus funds in the future.
(By Ratan Chaudhary, Head of Home Loans, Paisabazaar.com)