Applying For A Home Loan In Your 40s? Key Things To Keep In Mind

Last Updated:December 09, 2024, 07:01 IST

Knowing challenges and ways to overcome them, borrowers can improve their chances of getting approval for a home loan.

Many customers in India, particularly those in their 40s and above, often find themselves puzzled when their home loan applications are rejected. It’s important to understand how loan terms are decided and managed.

Ever wondered why your home loan application is rejected even after providing all the necessary information to the lender? Surprisingly, your age could be a factor. Banks can sometimes be selective about approving loan requests based on age, and borrowers over 40 years often face challenges.

Let’s take a look at some of the challenges older borrowers face in securing a loan;

• Steep and inflated interest rates: With customers over 40, there is a perception the earning horizon is shorter and, therefore, the risk of default is greater. Interest rates for the lender are usually higher in such cases to compensate for this added risk.
• Stricter and higher income criteria: As individuals age, lenders often consider them as high-risk borrowers, as a significant portion of their income may already be allocated to existing loans and expenses. This may lead lenders to impose stricter requirements on earnings.
• Shorter loan tenure: Lenders take into consideration the remaining years till retirement to decide loan repayment ability. Based on this, they may offer shorter loan tenure to reduce the risk of default, particularly if the borrower’s income is expected to decrease or stop after retirement. For borrowers nearing their retirement, this means higher monthly payments, given that the loan has to be repaid within a shorter period. This can be challenging, especially if their income is fixed or declining over time.

Managing loans smarter

The fact that lenders impose restrictions on older borrowers seeking loans, and the borrowers lacking the guidance on how to overcome these challenges can be concerning. This doesn’t mean these borrowers can’t or won’t be able to secure a loan.

By following these 3 simple strategies, they can navigate the obstacles effectively:

• Shop till you drop: You are not obligated to accept the loan offer subject to unwanted and unwarranted conditions. Instead, take the time to research and compare between multiple options available to you and choose the one that’s right for you based on your credit score, loan amount and interest payout. However, keep in mind that submitting multiple loan applications to various lenders at the same time can negatively impact your credit score.
• High credit score will rescue you: What is your credit history? Have you repaid your loans timely in the past? What is your current debt-to-income ratio? Lenders do not want to waste their time servicing laggards, which is why they check if the borrower has a good credit history.

A high credit score reflects a history of responsible financial behaviour and, thereby, may be used to somewhat assuage concerns about age and perceived risk.

Many lenders find that those borrowers who can show a solid credit history are generally more dependable and less likely to default on a loan.

• Larger down payment: Making a larger down payment can improve your eligibility for a home loan, regardless of your age. By paying a substantial down payment, you reduce the lender’s risk as they are financing a smaller portion of the property’s value. This can make you appear as a reliable borrower and increase your chances of securing favourable loan terms.

Knowing challenges and ways to overcome them, borrowers can improve their chances of getting approval for a home loan.

-The author is co-founder and CEO of BASIC Home Loan. Views expressed are personal.