All housing finance companies have certain guidelines to help determine the home loan eligibility for individuals. One such set of norms happens to be for individuals who are employed 'on contract basis'.
This note explains how these individuals are evaluated by HFCs and the rationale behind it.
Let us take an individual who has just completed his graduation and is working 'on contract' with a company. This is the individual's first job. In such a scenario, the HFC may have an issue in granting a home loan to this individual.
The reason behind this is that the HFC is not sure if the employment is of a permanent nature. And therefore, it doesn't want the loan repayment to suffer in case the employment contract is terminated thereby rendering the individual unemployed.
The HFC may also feel insecure about the fact that in case of termination of the contract, the individual may not be able to shift jobs/careers smoothly.
However, HFCs will consider such cases if the same individual were to have a work experience of say, 4-5 years behind him. The said work experience will speak for the individual; it will tell the HFC that although he may have been employed 'on contract', there's a degree of continuity in his career.
This assures the HFC that the individual's income is of a 'permanent' nature, which in turn will help him duly repay his home loan EMIs.
HFCs will also consider individuals who are graduates and have been employed only for a couple of years, but haven't shifted jobs in that time. In this time span, the individual's salary has been revised upwards while also being promoted. The HFC in this case, will not have any problem in considering this individual for a loan.
Let us take another example of an individual who has a professional degree like chartered accountancy for instance. He is in his first employment and working 'on contract'. He wants to take a home loan.
Keeping in mind his professional qualification, HFCs will consider granting a loan to this individual. That is because the additional degree lends credibility to the individual's capability to generate a stable income stream.
HFCs take a stand that even though the individual may be in his first job, he is unlikely to face difficulties in finding another job if and when the contract is terminated or if the individual decides to shift to another employer.
Another case in point is individuals who are in the higher age bracket and have been working 'on contract'. Suppose an individual aged 40 years, is working on contract with a certain organisation.
If this individual has been working here for say, 4-5 years, then the HFC may not have any problems in granting him a loan. However, if history suggests that he has changed jobs often, then the HFC may be apprehensive about granting him a loan.
The primary concern many HFCs have in such cases is -- why has the individual not been able to get a permanent employment at that age? This is a negative against that individual, which could prevent him from getting the loan.
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Home loan seekers must appreciate that HFCs are concerned mainly with timely and regular payment of EMIs. If the individual's qualification and employment history suggests that he can be expected to pay his EMIs on time, then the HFC should not have an issue granting him a loan. Individuals should keep these factors in mind while approaching the HFC for a loan.
The criteria for home loans in the article are illustrative. They may differ across housing finance companies.
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