Due to dropping home prices and loan interest rates, home affordability has increased significantly during the past two years. As a result, for financial institutions, house loan eligibility is a critical benchmark for determining the maximum loan amount a home loan applicant can borrow and evaluating that applicant’s creditworthiness to repay the loan.
The lenders thoroughly study a Home Loan applicant’s eligibility based on factors including credit score, loan length, repayment capacity, income, etc. However, applicants for Home Loans must learn ways to improve their eligibility for loans to buy their desired home.
Some of them you can use are-
1. Improve your credit score or CIBIL score:
Home Loan eligibility gets increased by having a high credit score. If you pay your credit card bills and monthly installments on time, it will have an impact on your credit score (EMIs). Any delay or default has a negative influence on your credit score. It will also improve your credit score if you maintain a low credit usage ratio (CUR).
Several financial institutions use a variety of credit bureau scores. Although there is no required minimum score for house loans, a score of 750 or higher is favorable for loan approval. Low house loan interest rates are also a result of having a good CIBIL score.
2. Apply for a joint home loan:
If there are many earners in your family, jointly applying for a Home Loan boosts your chances. Applying for a loan with your partner, parents, or both is the best action.
Co-borrowing improves Home Loan eligibility, divides the repayment cost, and provides tax advantages. In addition, your Home Loan eligibility is improved when you have a co-borrower with a high credit score because it makes your EMIs more manageable.
3. Choose a longer-term:
One can choose a lengthier loan term to boost their eligibility for a Home Loan. A higher loan term decreases the EMI amount while increasing the amount of interest.
4. Remove Your Debt Obligation
The lending institutions assess a Home Loan applicant’s debt-to-income ratio. Therefore, a candidate must pay off all debt. Applicant can raise his credit score by paying off outstanding bills.
5. Maintain a FOIR of less than 40%
The Fixed Obligation to Income Ratio (FOIR) is the debt-to-income ratio. Most lending models at financial institutions assume that you need close to 50% of your income for living expenses. Therefore, while applying for a home loan, try to limit your FOIR to up to 40%.
6. Declare Your Additional Income Sources
When you declare your additional sources of income, your home loan eligibility increases. Adding another source of income, such as rental income or a part-time business, can help you improve your financial health. Additional earnings will increase FOIR, emphasising your greater repayment capacity.
7. Try your best to make a larger down payment
A Home Loan gets financed up to 75% to 90% of the property value. However, you may be required to pay the remaining amount. The lower the down payment, the higher the loan value, and thus, the higher the payable interest. As a result, making a larger down payment is suggested to avoid higher interest payments.
8. Avoid Changing Jobs
If you are a salaried employee, you must have worked there for at least two years before applying for a Home Loan. The frequency of employment changes affects the amount of a house loan.
9. Select the best lender
Obtaining a loan from a housing finance company is easy if you are new to credit or are self-employed. It is because most housing finance companies have developed in-house models that assist them in determining the repayment capacity and creditworthiness of applicants with non-traditional sources of income.
HFCs have carved out a niche in this market, specializing in low-cost home loans, and are sometimes a better bet. HFCs also have a presence in micro markets where banks do not. Private or public sector banks will be available to salaried customers with good credit. Always go with lenders who have a solid parentage and track record.
Furthermore, lenders typically consider loans with a loan-to-value ratio of 85%.
10. Please don’t rush or panic.
It is best not to panic or rush when applying for a Home Loan. Before applying for a Home Loan, you should conduct thorough research and allow plenty of time. You should estimate your budget, find your income, determine your credit score, evaluate loan alternatives, decide between fixed and floating interest rates, and choose the desired interest rates with the fewest additional fees before applying for a Home Loan.
If you follow suitable actions, you can become eligible for a sizable loan amount, a longer loan term, and better terms and conditions. You should start by having a good credit rating and, if necessary, by attempting to correct any inaccuracies.
Creditworthiness is a crucial consideration when applying for a Home Loan. Continue to reduce your debt-to-income ratio while actively saving for a down payment on the house of your dreams.