Credit Appraisal It is the process of appraising the credit worthiness of a loan applicant.

Factors like age, income, number of dependents, nature of employent, continuity of employment, repayemnt capacity, previous loans, credit cards, etc. are taken into account while apprasing the credit worthiness of a person. Every bank or lending instution has its own panel of officials for this purpose.

Home Loan Procedure

With the increasing competition in the market for offering Home Loans, the otherwise tedious process of availing loans has gone a tremendous change in the recent years. However, there is still some process involved in the procurement of Home loan. It is advisable for you to first look at the different stages re uired for obtaining a Home Loan. !he followings are the step by step procedure of getting home loan"

Step1:Applicationform !he first step involved in applying for home loan is the procurement of application form from the HF# of your choice. !he $erforma of application every HF# %Housing Finance #ompanies& is different from the other but about '() information re uired to be furnished is the same. *long with the application form necessary documents like address proof, age proof, proof of income, bank balance etc. are also to be attached with the application form before it is submitted to the HF#. *long with all these documents HF#s also ask for processing fee of the home loan that varies (.+,) to (.,() of the total loan amount. Step 2 : Personal Discussion *fter successfully filling the application form and submitting it to the authority the ne-t step is face to face with bank or HF# where you have applied for the home loan. !he bank first evaluates the papers submitted and summons the applicant for the personal discussion regarding the home loan applied for. It is advisable that you carry all your original documents of whose copy you have submitted along with the application. Step 3 : Bank's Field Investi ation !he ne-t step is the field investigation done by the HF# or banks. !hey sent their representatives to the e-isting residence of the applicants or their offices for the validation of the documents submitted. !his is the essential part for the banks to establish the trust with the applicants. Step ! : Credit appraisal "# t$e "ank and loan sanction !his is the make or break stage of the process. !he bank or HF# will establishes repayment capacity based on your income, age, ualifications, e-perience, employer, nature of business etc. to access your credential. !he bank can refuse your loan application is any discrepancy is found at this stage. .ut if every thing goes according to the conditions negotiated by both the parties then the bank or HF# sanction the loan that may be unconditional or with some conditions levied. Step % : &ffer 'etter *fter the sanction of the Home Loan, the applicant gets offer letter from the bank or HF# with the following details"

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Loan amount /ate of Interest

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fi-ed or variable /0I !enure of the loan 1ode of repayment 2eneral terms and conditions of the loan 3pecial conditions, if any If the terms and conditions are agreed the applicant has to sign the duplicate copy of the offer letter and that is to be submitted to the .ank or HE#. Step ( : Su"mission of le al documents ) le al c$eck !he bank or the HF# now asks for the legal documents of the property involved for applying home loan. *ll the legal documents of the property involved have to be submitted. !he bank does all the legal checks on the property. !he documents remain with the bank until the repayment of the Home loan. Step * : +ec$nical , -aluation c$eck !he .anks or HF# then go about the technical valuation of the property. !he e-perts of the bank visit the site that has to be purchased and value it as per the e-isting rules and regulations. !he valuation of the property is the most important aspect that the bank considers before financing any property. Step . : /e istration of propert# documents *fter the legal and technical valuation of the property the draft documents has to be cleared by the lawyer and stamping and registration of the documents is needed. Step 0 : Si nin of a reements and su"mittin post1dated c$e2ues 4ow it is time of signing the final agreement of the home loan. *fter the signing of the agreement a bunch of $ost dated che ues are to be submitted as agreed on the agreement paper. Step 13 : Dis"ursement It is time for the final 5isbursement of the Home Loan. *fter the bank or HF# ensures financing the property is involves no risk they pay the final amount that is agreed upon. !he mode of payment varies from full to part payment. In the case of under construction property the mode is part payment and in the case of ready possession properties disbarment is full and final.

Home loan" #redit appraisal to arrive at eligibility

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*credit appraisal for a home loan is an important part of a loan eligibility evaluation process. !he appraisal is undertaken by a bank. Each bank has set its own parameters and standards for evaluating the credit worth of a potential borrower. !he eligibility for a loan that a person can avail of depends on his creditworthiness. * bank evaluates the repayment capacity of a borrower considering factors such as income, age, ualifications , e-perience, employer , nature of business %if selfemployed &, security of tenure, ta- history, assets owned, additional sources of income, other loan obligations , investments etc. .ased on the parameters of the bank, the ma-imum loan eligibility is worked out. !he final loan amount sanctioned by the bank is according to the loan9tovalue %L!:& norms, instalment9to9income ratio %II/& norms and the fi-ed obligation to income ratio %F0I/& norms laid down by the bank. II/ !his ratio is used to calculate the loan eligibility of a borrower and is generally e-pressed as a percentage. !his percentage denotes a portion of the borrower;s monthly instalment on the home loan taken. !he percentage may vary from 88.88 to 7(. For e-ample assume the II/ is fi-ed at 7( percent. 4ow, if the gross income is /s 6 lakh per month, according to the given II/ ratio, the borrower is eligible for a loan where the instalment does not e-ceed /s 7(,((( per month %i.e. 7( percent of the gross monthly income&. '+.anks also use this ratio to calculate the loan amount that a person is eligible for on the total cost of the property . !here is an upper limit on the ma-imum loan amount that a person is eligible for irrespective of the loan eligibility norms. !he ma-imum amount of loan is pegged to the cost or value of the property. !he loan eligibility according to the other parameters may be higher, yet the loan amount can;t e-ceed the cost or value of the property. !he ratio varies between <( and =( percent of the registered value of the property. F&I/ * bank takes into account the instalments of all other loans previously availed of by the borrower, including the home loan applied for. !his ratio includes all the fi-ed obligations that the borrower is supposed to pay regularly on a monthly basis. !he fi-ed obligations do

not include statutory deductions from salary such as $rovident Fund, professional ta- and deductions for investments such as insurance . For e-ample, assume a borrower has an income of /s 6 lakh per month. If he has a car loan instalment of /s 6(,((( and a personal loan instalment of /s +,((( per month, and a proposed housing loan instalment of /s +(,((( per month, the F0I/ is 8+ percent, the eligibility is /s 8+,((( 9 all loan instalments divided by the monthly income. !he bank may have a standard 8( percent of F0I/. 3o the total instalments the person can pay, as per the bank;s F0I/ standard, would be /s 8(,((( per month. *s he is already paying /s 6+,((( towards the car and personal loans, he has /s 6',((( left, and the loan will be calculated taking /s 6',((( per month as the housing loan repayment capacity. *ccordingly, the housing loan amount is reduced. 2enerally, the lowest of these three parameters is the amount of loan that a borrower is eligible for.

#redit appraisal determines your loan eligibility

*credit appraisal is an important part of determining the eligibility for a home loan, and the uantum of the loan. * prospective borrower has to go thorough the various stages of the credit appraisal process of the bank. Each bank has its own criteria to satisfy itself on the credit worthiness of the borrower. !he eligibility for the loan that a person can get depends on his credit worthiness, determined in terms of the norms and standards of the bank. .eing a crucial step in the loan process, a borrower needs to be careful in planning his financing modes. !he credit worthiness, basically, assures the repayment capacity of the borrower 9 whether the borrower is capable of repaying the loan and dues on time. Broadly, the information collected is on these aspects: 9 Incomes of the applicant and co9applicant 9 *ge of applicants 9 >ualifications 9 Family details 9 4ature of profession 9 E-perience 9 Employer 9 3ecurity of tenure 9 !a- history 9 *ssets owned and their financing patterns 9 *dditional sources of income 9 $ast loan record, if any 9 /ecurring liabilities 9 Investments 9 0ther present and e-pected liabilities !he norms differ from bank to bank. Each has certain norms within which a prospective borrower needs to fit to be eligible for the loan. .ased on these parameters, the ma-imum amount eligible is worked out. Some methods of arriving at loan amount: Instalment1toincome ratio * bank applies the instalment9to9income ratio %II/&. !his helps in finding the loan eligibility of the applicant. It is generally e-pressed as a percentage. !his percentage denotes a portion of the monthly instalment on the home loan taken. ?sually, the banks fi- 88.88 to 7( percent as the ratio. It is assumed that in normal circumstances, a person can pay an instalment up to 88.88 to 7( percent of his

salary. For e-ample" *ssume the II/ is 88.88 percent and the gross income is /s 8(,((( per month. *ccording to the II/ ratio, the applicant is eligible for a loan where the instalment does not e-ceed /s 6(,((( per month. Fi7ed o"li ation to income ratio .anks also calculated the eligibility based on the fi-ed obligation to income ratio %F0I/&. Here, a bank takes into account the instalments of all other loans already availed of by the applicant and still due, including the home loan applied for. !his ratio includes all the fi-ed obligations that a borrower is supposed to meet regularly on a monthly basis. !he fi-ed obligations do not include statutory deductions from the salary such as $rovident Fund, professional ta- and deductions for investments such as insurance or a recurring deposit. For e-ample, assume the income is /s 8(,((( per month, there is a car loan instalment of /s 7,(((, a !: loan instalment of /s 6,(((, and the proposed housing loan instalment is /s 6(,(((. *ccordingly, the F0I/ is ,( percent 9 ,( percent of the monthly income. !he bank may have a standard of 7( percent of F0I/. 3o, the total instalments the person can pay, as per the bank;s F0I/ standard is /s 6+,((( per month. *s he is already paying /s ,,((( towards the car and !: loans, he has /s <,((( left and the loan eligibility is taken as /s <((( per month as the basis of housing loan repayment capacity of the customer. !hus, a backward calculation of the repayment capacity is made to find out the amount to be given as loan. 'oan1to1cost ratio * bank also computes eligibility on the basis of a loan9to9cost ratio %L#/&. !his ratio is used to calculate the loan amount that an applicant is eligible for on the basis of the total cost of the property. !his sets the upper limit or the ma-imum loan amount that a person is eligible for irrespective of the loan eligibility under other criteria. !he ma-imum amount of loan eligible is pegged to the cost or value of the property. While the loan eligibility as per the other parameters may be higher, the loan amount can;t e-ceed the cost or value of the property. !he ratio varies between <( to =( percent of the registered value of the property. Loan eligibility is computed on the basis of these parameters that act as a guide to determine the loan amount. 2enerally, the lowest of these is taken as the loan amount that the applicant is eligible for.

#redit appraisals for loan application

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In order to get a housing loan the customer has to go through a credit appraisal process. Each bank A Housing Finance #ompany %HF#& has its own norms and standards to evaluate the credit worthiness of the customer to be eligible for loan application. .anks A HF#s employ various stringent financial and non9financial tools and techni ues to evaluate the credit worthiness of the customer. 5uring this whole process, the repayment capacity of the customer is established, mainly based on Income, *ge, >ualifications, E-perience, Employer, 4ature of business %if selfemployed&, 3ecurity of tenure, !a-ation history, *ssets owned, *lternative Aadditional sources of income, 0ther loan obligations, Investments, 0ther present and future liabilities. .ased on these parameters, the ma-imum loan eligibility is worked out. !he final loan amount sanctioned by the bank is as per the L!: norms, II/ norms and the F0I/ norms as laid down by the .ank AHF#. '+- , 'C/: L!: stands for the Loan to :alue ratio. L#/ stands for the Loan to #ost ratio. .anks A HF#s use these ratios to calculate the loan amount that a person is eligible for on the total cost of the property. !here is a upper limit on the ma-imum loan amount that a person is eligible for for the purpose of housing irrespective of the loan eligibility. !he ma-imum amount of loan eligible is pegged to the cost A value of the property. !he loan eligibility as per the other parameters may be higher but the loan amount cannot e-ceed the cost A value of the property. %!he ratio varies between <( to =( percent of the registered value of the property & F&I/: !his stands for Fi-ed 0bligation to Income /atio. In F0I/ calculation, the .ank A HF# takes into account the installments of all other loans previously availed of by the customer, including the home loan applied for. In other words, this ratio includes all the fi-ed obligations that the customer is supposed to pay regularly on a monthly basis. !he Fi-ed 0bligations however, do not include statutory deductions from the salary like $rovident Fund, $rofessional !a- and deductions for investment like :oluntary $rovident Fund, Insurance $remiums, /ecurring deposits etc. For example: Income -Rs 50,000 p m !ar loan instalment: Rs ",000 pm Fridge loan instalment: Rs #,000 pm $roposed housing loan instalment: Rs %5,000 pm *ccordingly, the F0I/ is ,( percent i.e. /s +,,(((. %all loan instalments divided by the monthly income&. !he bank A HF# may have a standard of 8( percent of F0I/. In this case, the total installments the person can pay as per the bank;s F0I/ standard would be /s 6,,((( per month. *s the borrower is already paying /s 6(,((( pm for car and fridge, he has /s ,,((( left and the loan would be calculated taking /s ,,((( per month as the housing loan repayment capacity of the customer. *ccordingly the housing loan amount will get reduced.

II/: !his stands for Instalment to Income /atio.!his is used to calculate the loan eligibility of the customer. It is generally e-pressed as a percentage. !his percentage denotes the portion of the customer;s monthly instalment on the Home Loan taken. *s a rule of thumb, the banks use 88.88 ) to 7( ) ratio. For &xample: IIR is '0( )ross Income is Rs *0,000+- per month *s per the II/ ratio, the customer is eligible for a loan where the instalment does not e-ceed /s. +7,(((A9per month %7() multiplied by 2ross 1onthly Income&