Can Future Rental Income Help You Get A Home Loan?

A steady monthly income for salaried employees makes it easy for them to get home loans. In the absence of such a guarantee, banks adopt stricter measures to gauge the loan repayment ability of the borrower. Interest rates are often higher and tenure shorter in those home loans that are not perceived entirely risk-free by banks. Businessmen and property owners looking for a home loan against future rental income, would find themselves in this spot. In this article, we answer the question a landlord might have with respect to his home loan eligibility.

Can you get a home loan?

Since you are already earning a rental income, you are eligible to get a home loan. However, through a rigorous process banks would find out whether you pose any financial risks.

Keeping the risks in mind, the bank may charge you one per cent of the loan value as processing fee (they waive this off in case of salaried applicants), as well as higher interest rates and shorter loan tenures (up to 10 years). Typically, the loan tenure would not exceed the period till which the property is already leased.

Do note that you cannot get a loan on future rent generating capacity of the property you are going to buy using the home loan. However, senior citizens who are earning a pension can avail of housing finance in this case.

Checks undertaken by banks

The bank would first investigate your rental income in the past and its consistency. A technical and legal inspection of the property will be initiated to establish its future potential, since the repayments largely depend on it. The bank would also use the property as the security against the loan.

How to make the home loan application stronger?

Applying for the loan jointly with a co-applicant who earns a stable monthly income will improve your chances of getting a home loan. Banks would also be more willing to lend you money if you pay a considerable part of the property value— 40 per cent or more, upfront. Another option is to find a loan guarantor. Additionally, the borrower must strive to create an impressive credit history over a period and a solid track record, something greatly valued in the world of banking.