NRI Home Loan Eligibility: What Factors Affect Your Qualification?

According to the Foreign Exchange Management Act (FEMA), an NRI (Non-Resident Indian) is an individual who spends 182 days or more outside of India in a given year. FEMA outlines specific criteria for determining NRI status. If you qualify as an NRI and are looking to secure a home loan to purchase property in India, to stay connected to your roots, or even purely as an investment choice, one of the first things you must do is check NRI home loan eligibility. 

Additionally, do your research and prepare a list of financial institutions that cater to the financial requirements of NRIs. It is important to remember that not every financial institution sanctions loans to NRIs. Additionally, before you apply to avail of home loans, do your research and read extensively about the factors that affect NRI home loan eligibility as well as the home loan process. This primary research, while time-consuming, will allow you to secure the loan on the most promising loan terms and conditions. 

NRI Home Loan Eligibility: Factors that Affect Your Approval 

1. Income and Job Stability: One of the most crucial factors affecting NRI home loan eligibility and the home loan interest rates a non-resident individual gets on their home loan is their income and job stability. People with a stable income and employment get approved for loans quickly and also enjoy good negotiating power regarding loan terms and conditions.

The rationale behind this is simple: individuals with a stable income from a stable job rarely default on loan repayment. Consequently, the risk of doing business with such NRIs is minimal. Such individuals make excellent clients and thus, are offered the most profitable home finance deals by financial institutions. 

2. Credit Score: It does not matter whether you are an NRI or an Indian citizen, know that every financial institution you apply to will check your credit rating. An individual’s credit score is a total of several factors, including their repayment history concerning old loans and credit cards, credit utilization ratio, the ratio of secured to unsecured loans, the age of one’s credit history, and one’s overall dependency on credit.

An individual’s credit rating tells financial institutions whether or not a loan applicant can be trusted with timely repayment of loan EMIs and indicates the risk for the financial institution in doing business with the loan applicant. A high credit score, i.e. anything in the range 750 to 900 indicates high creditworthiness and low risk of doing business. Therefore, NRIs with high credit scores have high home loan eligibility.

3. LTV Ratio: The LTV ratio is the ratio of the loan value or the loan amount availed of to the total value of the property. A high LTV ratio indicates a high loan amount compared to the value of the collateral. Thus, high LTV ratio loans are considered to be high-risk loans, and thus, lenders usually charge high home loan interest rate on these loans.

On the contrary, low LTV ratio loans include a low loan amount compared to the value of the pledged collateral. Low LTV ratio loans are also easy to repay due to affordable EMIs and carry a lower risk for financial institutions. Thus, when a loan applicant pays a high down payment and opts for a low LTV ratio loan, the chances of a loan default reduce considerably, and thus, low LTV ratio loans get approved easily and on the best loan terms and conditions.

4. Debt-to-Income Ratio: Your debt-to-income ratio, also known as FOIR or fixed obligation-to-income ratio will also affect your NRI home loan eligibility. If a significant portion of your total income is already going towards covering debt, it will be difficult for you to secure the loan on profitable terms. Individuals with high FOIR are people who are already diverting a significant portion of their total income towards covering debt.

As a result, it may be challenging for such individuals to manage additional loans. Whether you are an NRI or an Indian citizen planning to apply for a home loan, it is essential to ensure that your FOIR (Fixed Obligation to Income Ratio) does not exceed 40%.

Final Words

Other than the factors mentioned above, the quality of the pledged collateral and the loan applicant’s age also impact the home loan interest rates that one gets. Similarly, external market conditions also have a role to play. If you are planning to apply for an NRI home loan, make sure to read about the home loan process carefully, prepare yourself well for it, and keep all the home loan documents ready to navigate the whole process quickly and smoothly.