With the decline of interest rates, home affordability has increased sharply in the past two years. Hence, if you are considering buying a house, there are good chances of getting a home loan that covers most of the expenses. However, for first-time home buyers, you might require some extra research to crack the home loan eligibility.
To assess the trustworthiness of an individual to pay back a loan and to allow the maximum loan amount for a home loan, banks, non-banking finance companies (NBFCs), or housing finance companies (HFC) check home loan eligibility as a point of reference.
For every loan applicant, a lender checks some basic elements like credit score, term of the loan, the capacity to repay, income, etc. by carrying out a detailed analysis. However, loan applicants can follow some ways to enhance and improve their loan eligibility and become able to possess their dream home.
Improve Your CIBIL Score or Credit Score
Let’s say you want to buy a flat in Chennai with the help of a home loan. One of the most important factors that can help you secure a home loan is an excellent credit score. Make sure to pay off all your monthly installments (EMIs) and credit card dues on time. Your credit score reflects your seriousness in paying off your debts. Whenever there is a delay or default in your repayments, it will hurt your credit score. Your credit score will also benefit from a low credit utilization ratio or CUR.
A bank determines your creditworthiness by checking your credit score whenever you apply for a home loan. While there is no minimum score you need to secure as a home loan applicant it is good to hit 750 and above for approval on your home loan. You can also achieve low rates of interest on your home loan by maintaining a good CIBIL score.
Choose Joint Home Loans
Families with multiple earning members can make use of the facility of a joint home loan. Since there are multiple loan applicants, the chances of getting approval are much higher. Your best option would be your spouse and/or your parents.
By applying for a joint home loan, you not only increase your eligibility but also divide the burden of repayment and avail tax benefits. An ideal situation would be a co-borrower with a healthy credit score that boosts your EMI affordability.
Choose a Longer Repayment Period
If you want to buy a flat in Chennai, and increase your home loan eligibility, you need to opt for a longer tenure to pay back the loan. But you need to keep in mind that by lowering your EMIs and increasing the tenure, you will also increase your total payable interest. Hence, it will lead to a hike in the cost of borrowing when you opt for a longer repayment tenure.
Repay Your Debts
No matter which bank or money lending institution you choose for getting a home loan, your debt-to-income ratio will determine your home loan eligibility. Hence, before you apply for a home loan to buy a 3BHK apartment in Adyar, make sure to clear all your loan obligations as this will have a positive impact on your home loan eligibility.
Maintain a FOIR Below 40%
Fixed Obligation to Income Ratio or FOIR is the ratio of debts to income. It is an essential parameter that helps banks and money lending institutions determine home loan eligibility. Most financial institutions follow a lending model that needs you to be close to 50% of your entire income as spending on the living expense. In an ideal situation, your FOIR should be limited to less than 40% as it elevates your home loan eligibility.
Show All Your Additional Sources of Income
When you are applying for a home loan to buy a flat in Chennai, you need to declare all the additional sources of income to increase your home loan eligibility. There are many kinds of additional income sources like rental income and part-time business. These additional sources of income help you to improve your financial health and in return, help you secure a higher loan amount. Your FOIR will also receive a boost if you have additional income and reflect a higher loan repayment capacity.
Try To Save Money for a Higher Down Payment
Most banks and financial institutions approve home loans that cover 75% to 90% of the total value of a property. Hence, the rest of the amount will come directly from your pocket. Remember that if you have a lower down payment, you will end up with a higher loan value and a higher rate of interest. Hence, it is always advisable to opt for a higher down payment so you can lower your rate of interest.
Avoid Panic buys or Impulsive Purchases
You have chosen a plot near Mannivakkam to build your home and you want to begin the process of construction quickly. So you choose a bank and apply for a loan.
This impulsive decision can cost you a lot and you can end up with high-interest rates. Remember that buying a house or land is an expensive affair and home loans need to be researched. You need time to calculate your income and choose the right kind of interest, estimate your budget, check for errors in your CIBIL score, compare loan options, etc. before applying for one.
The process of applying for a home loan is tedious and takes time. But if you follow these above-stated steps to improve your loan eligibility, you can easily gain approval and become a homeowner.
