Home or property in today’s time is a crucial asset that assists one in reaping various financial benefits. No matter whether you are looking to purchase a property for the purpose of investment or just finding a new home for yourself, the financial institution offers you many home loan opportunities that are beneficial and lucrative. A Home Loan is an excellent option to finance a home if you are short of money or not in favour of redeeming your investments or savings. With the help of simple loan EMIs and the option to opt for repayment loan tenure basis one’s convenience, financial institutions assist in making your dream of buying a home or property a reality. However, before you get started with the home loan application process, make sure to know the crucial parameters that lenders factor in to decide your home loan eligibility.
Home loan lenders assess your home loan eligibility by reviewing your credit score, monthly income, job profile, EMI affordability, employer’s profile, etc. Failing to meet the home loan eligibility standards set by the home loan lenders can result in home loan application rejection.
Here, we will list 4 crucial tips to enhance your home loan eligibility:
Table of Contents
Include in a Co-Applicant
Prospective applicants of home improvement loans with extremely low home loan eligibility due to their poor credit score of below 750, insufficient income, risky job profile etc., can enhance their home loan eligibility by including an earning family member as a co-applicant home loan. As the co-applicants are responsible equally for repaying home loan EMIs, including a co-applicant lowers the lender’s credit risk and increases the approval chances for a home loan.
As including in a co-applicant enhances the EMI affordability for loan applicant, it even can assist at the availing higher home loan amount. But note that any delay or default on repayment of home loan EMI would lower the primary borrower’s credit scores and co-borrower. Thus, as a primary borrower of a home loan, ensure to timely repay your home loan EMIs in full as owing to your financial indiscipline, your co-borrower will also have to face the consequences.
Ensure To Accumulate Higher Contribution For Home Loan Down Payment
As per the guidelines by the RBI, lenders are permitted to fund up to 75 to 90% of the value of the property in the form of a home loan basis the loan amount. The rest of the amount is required to be met by the applicant’s own pocket. The final proportion is decided based on the credit risk assessment conducted by the lender on receiving the application for a loan from the applicant.
Note that making a higher contribution for the down payment amount from your own pocket lowers the lender’s credit risk, which in turn enhances your home loan eligibility. Doing this even reduces the entire Home Loan interest Rate cost. But note that few of the applicants in pursuit of making a higher contribution for down payment amount often compromise on their emergency fund or crucial investments marked for attaining critical financial goals. Doing so should be avoided at all costs, as it can force you to opt for higher interest cost loans in situations if you face unexpected financial difficulties or require funds to meet your financial goal.
Assess Your Home Loan Emi Affordability Before You Submit Your Application For A Home Loan
Home loan lenders need the applicant’s EMI, involving the EMI for a new home loan and the other existing loan EMIs to stay under the margin of 50-60% of the applicant’s NMI or net monthly income or GMI or Gross Monthly Income. The ones going over this set limit hold reduced chances of home loan approval. For enhancing your home loan approval chances, you should keep your monthly obligations for loan repayment under the margin of 50 to 60% of your GMI or NMI. For doing so, you can consider bringing down your existing loan EMI proportion by foreclosing/prepaying some of your current loans. If you lack surplus funds to prepay your existing loan debts, you can opt for longer home loan tenures, or you can make a higher down payment for a new home loan for reducing your total EMI outgo.
Remember that all loan EMI depends on the loan amount, rate of interest, and loan repayment tenure. Though a higher EMI will result in shorter loan tenure and reduced interest cost, a lower EMI would result in longer repayment tenure and increased interest costs. Thus, applicants of the home loan must assist home loan EMI calculators in figuring out the optimum EMI depending upon their repayment capacity. Such home loan applicants should even consider their month on month unavoidable expenses, monthly contributions that go towards their financial goals, insurance premiums, rent, children fee etc., to know their optimum EMIs. Applying for a home loan after you know your optimum loan EMI will lower the chances of home loan EMI default that may occur due to aggressive repayment schedules.
Make Sure To Maintain A Strong Credit Score.
A credit score is an important key factor considered by lenders for evaluating the home loan applicant’s creditworthiness. The ones with a strong score of 750 or more are looked upon as financially responsible and hence hold lower credit risk. Moreover, such home loan applicants with higher scores have enhanced chances of home loan approval than those with lower scores of below 750 as they are considered to be financially irresponsible and carry higher credit risk.
Thus, if you are someone looking to take up a home loan, ensure to fetch your credit reports at periodic intervals. Doing so would permit the ones with lower credit scores of below 750 to take necessary measures to ameliorate the score first before they apply for a home loan. Those who are new to credit environment can build their credit score by using their credit card in a disciplined manner. Once you reach a score of 750 or above, you can apply for a home loan.