Finance

When are you too old to take a home loan?

Last Updated on by davidhibner

With increasing age, it can get harder to get a home loan, but that doesn’t mean it’s out of the question. Lenders do tend to hold back with people of age more than 60. Banks consider many factors in approving loans. With people nearing retirement, aspects like pensions are taken into consideration, and income is what banks consider before granting a loan, as income determines the ability of loan repayment. In most cases, lenders prefer a net pension of more than Rs. 5000 per month. While evaluating an application for home loan approval, the lenders may choose income sources other than a pension, such as rental income, as a primary income source. People can also benefit from the same as there are lowest home loan interest rates, making it a good choice. You can select and compare different offers from different banks. Thereby make a final call. 

The provision with money lending is that the money has to be paid back with interest. In the case of home loans, the tenure is particularly long, and greater chances of the borrower dying and not repaying the loan can make the lenders hesitant. Banks seek the surety that their interest is secured and means of loan recovery after the borrower’s death. Other than this, banks also consider older adults’ expenses and how those expenses may affect your ability to repay the loan. The down payment required may be demanding for more senior citizens, as banks never fund a 100% loan. Banks, in general, set a ceiling for the money they can lend.

Getting a home loan approval at an older age may be hard but not nearly impossible. There are many choices available for senior citizens to land a loan. Besides, multiple banks have schemes for senior citizens and pensioners. Due to the uncertainty in older people’s life span, the length of tenure is relatively shorter for people above 60 as the lenders want the loan to be repaid by the age of 75, and an earning relative may need to act as a guarantor. Also, the amount granted for home loans to senior citizens may be lower than to people of lower age. 

A housing loan is the most accessible loan option to senior citizens since the house itself is a form of collateral. Banks may sometimes extend some amount as a loan to purchase or construct a house or a flat, purchase a site, and then construct. Applying for a joint home loan with another family earning member as a co-applicant may boost loan approval chances. A low fixed obligation-to-income ratio (FOIR), which is the ratio of income being paid out as loan EMIs and credit card repayments, also increases the chances of approval. Hard inquiries, credit card checks by lenders may harm credit score by a few points. The lenders check applicants’ credit profiles to decide on loan approval. It’s an excellent option to use online calculators or marketplaces to avoid harming your credit score by multiple loan applications.

For senior citizens or retirees, online EMI calculators’ availability is highly beneficial. They can allow them to pre-plan their outflow of money per month upon taking a home loan. EMI calculators can help calculate the EMI amount as per the required amount of loan, tenure of the loan, and interest rate applicable. Opting for a lower LTV ratio will result in a lower amount of borrowing. An LTV (Loan to Value) ratio is the proportion of the value of a house or property funded by the lender. A lower LTV ratio would decrease the per month EMI amount, improving older adults’ loan eligibility. 

Other Fees and charges

A housing loan not only comprises EMI payments and interest rate but, in fact, also includes several other charges and costs. The charges are listed below:

  • Application Cost: During the initial home loan process, the home loan provider charges a certain amount as an application fee.
  • Processing Costs: While processing a housing loan, lenders charge a certain amount as a one-time payment based on the borrower’s profile and earnings. It may vary from lender to lender and, in some situations, maybe zero.
  • Foreclosure charges: Lenders charge a certain amount as a penalty for foreclosing a housing loan or in the case where the borrower is prepaying the loan amount fully or partially. Prepayment and foreclosure costs can vary for different lenders.
  • Legal Fee: The home loans borrower owes the legal payment for processing the housing loan application. The lender levies these charges.
  • Stamp Duty: The franking fee, or the stamp duty fee, is paid to the State Government by the home loan borrower to pay the legitimate possession of the land charges.

Reverse Mortgage

The government introduced the reverse mortgage scheme in 2007, but it has not been well taken up in the region. This loan amount is determined by the valuation of a residential home as per the bank’s market value and extends the value obtained to a senior citizen as a loan. Indian citizens over the age of 60 who own an independently acquired residential property in India can choose to take over the scheme individually or with a spouse.

The quantity of the loan usually ranges from Rs 1 lakh to 2 crores, depending on the region, and is subject to a maximum of 90% of the land’s value. The loan tenure lasts from 15 to 20 years. If the last applicant passes away, the bank usually permits the next family to repay the debt with interest, failing to sell the house to get the money back.

Document Checklist

For availing of a housing loan, applicants have to submit the following list of documents.

 

  • Application Form – Duly signed application form with photo

 

  • Identity Proof – PAN card, Passport, Driving License, Aadhaar Card, Voter id, Govt issued i-card.
  • Address Proof – Any residence proof like Passport, Driving License, Election ID card, Electricity/ Telephone/ Mobile bill/ Previous three months bank statement, etc.
  • Income Proof – Salary slip, bank statement of 6 months, Form 16
  • Documents Related to Property: Past title chain – Conveyance deed, Sales deed, Allotment letter, Possession letter, Latest property tax receipt, Copy of approved plan for construction/ extension.

 

 

The lower chances of loan approval and capped repayment period of 15-20 years can make it challenging to avail home loans for older people. But with broader and flexible criteria, keeping the things mentioned above in mind can boost the chances.

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