With home prices plummeting and loan interest rates reaching record lows during the past two years, home affordability has increased significantly. The likelihood is that you would want to obtain the largest loan available if you were planning to purchase a property. If you’re a first-time home buyer, you’ll need to do some homework to determine your eligibility for a loan.
For banks, non-banking finance companies (NBFCs), or housing finance companies (HFCs), determining the maximum loan amount a house loan applicant is entitled to borrow and determining that applicant’s creditworthiness to repay the loan are critical benchmarks.
The lenders thoroughly study a Home Loan applicant’s eligibility based on factors including credit score, loan length, repayment capacity, income, etc. To acquire their ideal homes, Home Loan borrowers must grasp how to improve their eligibility. This post will discuss some tips on how to enhance loan eligibility.
#1 Improve Your Credit Score
Good credit scores increase the likelihood of being approved for a house loan. To do that, one must ensure that all loan repayments are made on time. Any delay or default has a negative influence on your credit score. Your credit score will benefit from maintaining a low credit usage ratio (CUR).
When you apply for a Home Loan, the financial institution typically does a credit check to determine your creditworthiness. Financial institutions use various credit bureau scores. Although there is no minimum score requirement for Home Loans, a score of 750 or higher is typically regarded as favorable for loan approval. Another perk of having a high CIBIL score is that Home Loans have low-interest rates.
#2 Get Rid of Past Debt Obligations
The debt-to-income ratio is crucial for lending institutions to assess a Home Loan applicant’s eligibility. Therefore, it makes sense for a candidate to pay off all debt as this will increase her or his eligibility for a mortgage. They have to raise their credit score by paying off outstanding bills.
#3 Declare All Additional Income Sources
When you disclose your additional sources of income, your eligibility for a house loan increases. You should add another source of income because it will help you secure a larger loan amount. Examples of other sources of income include rental income, a side business, etc.
#4 Choose Joint Home Loans
If there are many earners in your family, applying for a loan jointly greatly boosts your chances of becoming eligible for a loan. The best move here is to seek a loan alongside your partner, parents, or both.
Increased Home Loan eligibility, shared repayment responsibilities, and tax advantages are all advantages of co-borrowing. Your EMI becomes more manageable if you have a co-borrower with high credit, which improves your potential to qualify for a house loan.
#5 Choose a Longer Tenure
One can choose a lengthier loan term to boost their eligibility for a house loan. Although a longer loan period lowers the EMI, it ultimately results in a higher interest rate that must be paid.
Read What Is a Good Credit Score?
#6 Maintain a FOIR below 40%.
The Fixed Obligation to Income Ratio (FOIR), which measures how much debt you have in relation to your income, is a crucial factor in assessing your eligibility for a house loan. As per the lending models used by financial institutions, the assumption is that your living expenditures will take up close to 50% of your income. So, if possible, strive to keep your FOIR at a maximum of 40% when applying for a house loan to improve your Home Loan eligibility.
Bottom Line
You can easily become eligible for a greater loan amount, a longer loan term, and better terms and conditions if you do the above-mentioned actions to enhance and boost your chances of qualifying for a house loan.
Creditworthiness is a vital consideration when applying for mortgage loans. Continue to reduce your debt-to-income ratio while actively saving for a down payment on the house of your dreams.
