Many of you often limit your research to choosing the right property and lender for your home loan. While both are important parameters to consider, there are other factors too that you must lay emphasis on before you avail the loan to secure your long-term financial health.
Checkout 4 important points to enhance your home loan eligibility chances:
- Build a corpus for down payment
According to RBI guidelines, lenders can fund up to 75-90 percent of the home’s value via home loan based on the loan amount. Lenders decide your final proportion depending on their credit risk evaluation considering you. Rest of the component must be contributed by you from your own pocket. Thus, if you are looking to avail a home loan, you must accumulate at least 10 to 25 percent of the property’s targeted cost.
Note that building a bigger down payment corpus can derive additional benefits for you. Firstly, a bigger contribution results in smaller loan proceeds, which in turn leads to reduced interest cost. Secondly, higher contribution by you lowers the lender’s credit risk, which enhances your chances to receive loan approval.
However, avoid compromising your contingency fund and important investments earmarked for your life goals to make a higher contribution for home loan. Doing this might propel you to take up high interest loans to face financial emergencies or meet important life goals.
- Assess your credit report in detail
After you apply for home loan, lenders avail your credit report from the concerned bureau to assess your credibility while approving your loan. If your credit score is equivalent to 750 or above, you may hold higher loan approval chances as this score signifies you are financially disciplined behavior, which in turn reduces lender’s credit risk. Many lenders may also provide a preferential rate if your credit score is good. On the contrary, in case your credit score is low i.e., below 750, your chances of availing loan approval may be extremely low. Even if you receive loan approval, it may be at a higher home loan interest rate.
Thus, if you are planning to opt for a home loan, ensure to assess your credit report periodically. Doing so will permit you to take the required steps to ameliorate or maintain your score. Remember, you can fetch a free credit report through online lending markets monthly. Alternatively, you can approach each of the 4 bureaus once in a year to avail free credit reports.
- Review your EMI affordability
Lenders generally prefer your monthly loan repayment obligation including your new home loan EMI to be under 60 percent of your monthly income. In case you exceed this limit, you may hold lower home loan approval chances. You can bring down your debt-to-income ratio by either prepaying your existing loans or paying a higher margin contribution/down payment. You may also choose longer home loan repayment tenure to lower your debt-to-income ratio.
- Compare amongst different lenders
Housing loan interest rate, repayment loan tenure, loan amount, processing fees and LTV ratio offered by lenders can widely vary based on your credit profile. Hence, you must begin your home loan search by directly contacting the financial institution with whom you hold an existing long-term relationship. Next, you must visit the online lending markets to compare various home loan offers provided to you based upon your credit score, job profile, income etc.
Once done, compare all the offers to choose the best one. Use the home loan EMI calculator to compute the EMI and tenure that you can opt for depending upon your repayment capacity.
Availing a home loan is not as easy as it seems. You must accumulate a considerable proportion of your overall home purchase cost i.e., accumulate down payment corpus to be eligible for home loan. Next, your repayment capacity must also be high as this aspect is even evaluated by the lenders. Thirdly, holding the appropriate documents for home loan approval is also one of the important factors that determines your eligibility. Documents required for home loan include your income proof, banking proof, age proof, identity proof, signature proof, address proof, educational qualification etc. Thus, it is crucial for you to check all these factors beforehand to understand your financial preparedness for a home loan.