Housing affordability has risen sharply over the past two years, with home rates falling and loan interest rates falling to their lowest. So, if you are planning to buy a home, chances are you want to get as high a loan as possible. If you’re a first-time home buyer, determining mortgage eligibility requires a bit of research.
Home loan eligibility is a key benchmark for banks or non-bank finance companies (NBFCs) or housing finance companies (HFCs) in determining the maximum loan amount that a home loan applicant is. authorized to borrow and assess its reliability to repay the loan.
Based on things like credit score, loan term, repayment capacity, income, etc., lenders do a detailed analysis of a home loan applicant’s eligibility. However, for home loan seekers it is essential to understand ways to improve mortgage eligibility and this is how they can own their dream home.
Improve your CIBIL or your credit score
An excellent credit score always increases eligibility for a home loan. To achieve this, one must ensure that all loan repayments are made on time. If you pay your credit card dues and monthly payments (EMI) on time, your seriousness in settling your debts will reflect on your credit score. Any default or delay has a negative impact on your credit score. Maintaining a low credit utilization rate (CUR) will also help your credit score.
When you apply for a home loan, the bank usually checks your credit score to determine your creditworthiness. There are several credit scores used by banks and financial institutions. There is no minimum score for a home loan, but 750 and above is generally considered a good score for approval of a home loan. A good CIBIL score also results in low interest on home loans.
Opt for joint home loans
In the event that you have several salaried family members, jointly applying for a home loan greatly increases your chances of increasing your eligibility for a home loan. The best option is to apply for a home loan with your spouse and / or parents.
Co-borrowing not only improves mortgage eligibility but also divides the repayment burden and provides a tax benefit. A co-borrower with a good credit rating increases your EMI accessibility, thereby improving your mortgage eligibility.
Opt for a longer term
To increase eligibility for a mortgage, one can opt for a longer-term mortgage. Although a longer term home loan reduces the amount of the EMI, it ends up increasing the total interest payable. So, you need to factor in a higher cost of borrowing while opting for a longer repayment period.
Clear your debt
The debt-to-income ratio is essential for lending institutions to assess a mortgage applicant’s mortgage eligibility. Therefore, for an applicant, it makes sense to clear all loan obligations that will positively impact their home loan eligibility. She / he should increase his / her credit rating by paying off overdue debts.
Keep your FOIR below 40%
The ratio of your debt to income is the Fixed Bond to Income Ratio (FOIR) and it is a critical parameter in determining eligibility for a home loan. The loan models of most financial institutions assume that you need almost 50% of your income for your daily expenses. Ideally, when taking a home loan, try to limit your FOIR up to 40% in order to increase the chances of getting approved for the loan.
Declare your additional sources of income
Eligibility for housing credit increases when you declare your additional sources of income. Adding another source of income such as rental income, part-time business, etc. can help you improve your financial health. So you need to add another source of income as it helps to get a higher loan amount. Additional income will increase FOIR, thus emphasizing your higher repayment capacity.
Try to make a larger deposit
A financial institution or lender finances a home loan at around 75 to 90% of the value of the property. However, you may have to bear the cost of the remaining amount. Lower the down payment, the higher the value of your loan will be, and therefore the higher the interest payable. It is therefore always advisable to make a higher down payment in order to avoid a higher interest payment.
Avoid changing jobs
If you are a salaried person and you plan to apply for a home loan, you must work continuously in an organization for two years. Frequent job changes have an impact on the amount of mortgage eligibility. Therefore, planning should 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 housing finance company. Most housing finance companies have developed internal models that help them determine the repayment capacity and creditworthiness of applicants with informal income sources.
HFCs have developed a niche in this segment with expertise in affordable home loans and are sometimes a better bet. HFCs are also present in micro-markets where banks are not present. For salaried clients with a high credit score, your options will be private or public sector banks. Always go for lenders who have a solid background and track record.
Plus, lenders typically consider 85% (loan-to-value) for loans. But if it’s a lender-approved project, or if they have a good relationship with the builder, they can consider LTV up to 90%.
Don’t panic or hurry
It is advisable not to panic or rush to apply for a home loan. You should do proper research and give some time before applying for a home loan. You need to estimate your budget, calculate your income or income, check your CIBIL report for errors, compare loan options, choose between a fixed or variable interest rate, and choose the interest rates you want with minimum additional fees. before applying for a home loan.
If you take the aforementioned steps to improve and increase your chances of qualifying for a home loan, you can quickly become eligible for a larger loan amount, extended tenure, and better terms. 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. At the same time, continue to reduce your debt ratio and actively save for your down payment to buy your dream home.