Home affordability has increased dramatically in the past two years with housing rates declining and loan interest rates falling to their lowest level. So if you are planning to buy a home, you probably want to get as much of a loan as possible. If you are buying a home for the first time, you need to do a little research on your eligibility for a home loan.
Home loan eligibility is a key benchmark for banks or non-bank finance companies (NBFCs) or home finance companies (HFCs) to determine the maximum loan amount a home loan applicant can borrow and evaluate its reliability to return the money. loan.
Based on things like credit score, loan term, ability to repay, income, etc., lenders conduct a detailed analysis of a home loan applicant’s eligibility. However, for home loan applicants, it is essential to understand the ways to improve home loan eligibility and that is the way you can own your dream homes.
Improve your CIBIL or credit score
An excellent credit score always increases your eligibility for home loans. To achieve this, you need to ensure that all loan repayments are made on time. If you are paying your credit card fees and monthly payments (EMI) on time, your seriousness in debt settlement will be reflected in your credit score. Any default or delay negatively impacts your credit score. Keeping a low credit utilization ratio (CUR) will also help your credit score.
When you apply for a home loan, the bank generally checks your credit score to determine your creditworthiness. There are several credit bureau scores used by banks and financial institutions. There is no minimum score for home loans, but 750 or higher is generally considered a good score for home loan approval. A good CIBIL score also leads to low mortgage interest rates.
Opt for joint home loans
If you have multiple income members in your family, applying for home loans together greatly increases your chances of increasing your eligibility for home loans. The best option is to apply for a home loan with your spouse and / or parents.
The co-loan not only improves home loan eligibility, it also splits the repayment burden and offers tax benefits. A co-borrower with a good credit score increases the affordability of your EMI, thereby improving your eligibility for a home loan.
Opt for a longer tenure
To increase your eligibility for home loans, you can opt for an older home loan. Although a home loan with a longer tenure reduces the amount of EMI, it ends up increasing the total interest payable. So you need to factor in a higher cost of borrowing while looking for a longer repayment period.
Eliminate your debt obligation
The debt-to-income ratio is critical for lenders to assess a home loan applicant’s eligibility for a home loan. Therefore, for an applicant, it makes sense to pay off all the loan obligations, which will positively affect their eligibility for the mortgage loan. He / she must increase your credit score by paying off outstanding debts.
Keep your FOIR below 40%
Your debt-to-income ratio is the Fixed Obligation to Income Ratio (FOIR) and is a critical parameter in determining eligibility for a home loan. Most financial institution loan models assume that you need about 50% of your income to spend on your living expenses. Ideally, when opting for a home loan, try to limit your FOIR up to 40% to increase your chances of getting loan approval.
Declare your sources of additional income
Eligibility for home loans increases when you declare your additional sources of income. Add another source of income, such as rental income, part-time business, etc. can help improve your financial health, so add another source of income as it helps secure a higher loan amount. The additional revenue will boost FOIR, thus underlining its increased repayment capacity.
Try to make a higher down payment
A financial institution or lender finances a home loan approximately 75% to 90% of the property’s value. However, you may have to bear the cost of the remaining amount. Lower the down payment, the higher the value of your loan and, therefore, the higher interest to pay. Therefore, it is always advisable to make a higher initial payment to avoid a higher interest payment.
Avoid job change
If you are a salaried person and you plan to apply for a home loan, then you must continuously work in an organization for two years. Frequent job changes affect the amount of mortgage loan eligibility. Therefore, planning must be done well in advance so that you can show two years of continuous service in an organization.
Choose the right lender
If you are new to credit or are self-employed, you will have a better chance of getting a loan from a home finance company. Most home finance companies have developed internal models that help them determine the repayment capacity and credit worthiness of applicants who have informal sources of income.
HFCs have developed a niche in this segment along with experience in affordable home loans and are sometimes a better option. HFCs also have a presence in micro markets where banks are not present. For salaried clients with a high credit score, your options will be public or private sector banks. Always go for lenders who have a strong background and track record.
Also, lenders typically consider 85% (loan-to-value) for loans. But if it is a project approved by the lender, or if they have a good relationship with the builder, they can consider up to 90% LTV.
Don’t panic or rush
It is recommended not to panic or rush to apply for a home loan. You need to do proper research and take the time before applying for a home loan. You need to estimate your budget, calculate your earnings or income, check your CIBIL report for errors, compare loan options, choose between fixed or variable interest rates, and choose your desired interest rates with minimal additional charges before applying for a home loan. .
If you take the steps mentioned above to improve and increase your chances of qualifying for a home loan, you can quickly become eligible for a higher loan amount, an extended tenure, and better terms and conditions. You should start the process by first improving your credit scores and correcting any mistakes if necessary.
Creditworthiness is an important factor in obtaining home loans. Simultaneously, continue to reduce your debt-to-income ratio and actively save for your down payment to buy your dream home.