Your repayment capacity will decide how much loan you get

Yesterday I visited LIC Housing Finance’s Dadar Branch for a loan. The branch Manager refused my proposal because the gap between the submission dates of the last two IT returns is very short (July 27, 2010 for 2009-10 and July 30, 2010 for 2010-11).

He said the gap should be more than 6 months. I have had a small business for the last seven years in a rented place, making sign boards (logos & company names at main board or reception area, housing society members’ name boards, name plates) and designing for all types of printing (four colour offset, digital printing), etc.

I want to buy a home up to Rs10 lakh. I have a balance of Rs7 lakh from which I can use Rs5 lakh directly. So I need Rs5 lakh more as a loan. I have the relevant documents. Can I get a loan and how much? —Sunil Pawar

Your bank or housing finance company will assess your repayment capacity while deciding the home loan eligibility.

Repayment capacity is based on your monthly disposable or surplus income (which in turn is based on factors such as total monthly income or surplus less monthly expenses) and other factors such as spouse’s income, assets, liabilities, stability of income, etc.

The main concern of the bank is to make sure that you comfortably repay the loan on time and ensure end use.

The higher the monthly disposable income, higher will be the amount you will be eligible for loan.

Typically, a bank assumes that about 55-60% of your monthly disposable or surplus income is available for repayment of loan.

However, some banks calculate the income available for EMI payments based on an individual’s gross income and not on his disposable income.

The amount of the loan depends on the tenure of the loan and also the rate of interest, as these variables determine your monthly outgo/ outflow, which in turn depends on your disposable income. Banks generally fix an upper age limit for home loan applicants.

If you have a valid proposal whereby you can buy a house for Rs10 lakh and you need only Rs5 lakh as loan, you may submit your papers to your banker as well.

The writer is chief counsellor, Abhay credit counselling, a trust sponsored by Bank of India. He will answer credit card and loan queries and can be contacted at dnadebtqueries@gmail.com