To get home loan approved has got little more difficult

The banks offering 8% to 8.5% interest rate on home loans have made buying house affordable which in turn has revived the real estate market. On the other hand according to prospective buyers getting a home loan approved has got a little more difficult.

After the economic meltdown, banks are rechecking the installment to income ratios (the figure that determines the EMI). Previously on the loan up to 50% of the monthly salary banks had extended EMI (equated monthly installment). But, now this installment to income ratio is between 30% and 50%. Renu Sud Karnad, joint MD, HDFC, told, "It's not advisable to have a single number".

Also, many banks are taking into consideration only the recurring income of the potential buyer to calculate the monthly EMI. Praveen Kutty, executive V-P and head (retail banking), Development Credit Bank informed, "Banks are no longer looking benevolently at other sources of income such as performance bonus, variable pay, while computing the installment to income ratio". Karnad said, "Our focus is on income sources that are consistent while arriving at the ratio".

Kotak Mahindra Bank a private sector bank takes into account only the monthly income to calculate the EMI. Kamlesh Rao, executive V-P, Kotak Mahindra Bank stated, "We don't look at other incomes such as bonus because it may not be there every year". While some banks to maintain consistency in loan disbursals, they are assigning sector-wise ‘installment to income' ratios. These ratios are calculated on the basis of the performance and the credit rating of the industry.

According to analysts banks are taking stringent steps to improve the risk management.

Clyton Fernandes of AnandRathi Financial Services stated, "Some time back, capital was hard to come by. Banks did not want to set aside huge amounts towards lending because if delinquencies arose, they would have had to make provisions for those".

The banks are scrutinizing documentation stringently before disbursing home loans. Besides checking the pre-requisite documents like IT returns of three years, PAN card copy and bank statements of the last six months, banks are also examining details such as passbook entries to check withdrawal patterns. Rao pointed out, "Banks like us are actively tapping the Cibil (Credit Information Bureau) list to check the credit card payment history. Such checking is now integral to the credit buying process".

And from the professionals who have shifted to metros, banks are asking for title deeds of house in the hometown even though it is registered in the name of the parents, to establish the repayment capacity of the executive.