Lenders take into consideration several factors while evaluating your home loan application. The chief amongst them are your income, income, age, remaining working age, LTV ratio, property characteristics and your existing loan repayment obligations. Failure to match the cut-off set by the lenders can get your home loan application rejected.
Here are five smart ways to boost your home loan eligibility and approval chances:
Make higher down payment or margin contribution
The RBI allows lenders to finance up to 75%-90% of a property’s value through a home loan. The remaining proportion of the property’s cost has to be contributed from the borrower’s own resources as down payment or margin contribution. While most home loan applicants aim at contributing minimum down payment or margin amount, making a higher down payment or margin contribution has its own benefits. Firstly, availing a lower loan amount would lead to smaller EMIs and lower interest cost. In addition to this, making a higher margin contribution or down payment also reduces the credit risk for the lender, which in turn increases the possibility of your home loan approval at probably lower interest rates.
However, avoid compromising your emergency fund or investments earmarked for crucial financial goals in your pursuit to make a higher down payment or margin contribution. Doing so may force you to take a loan at a higher interest rate in the future to tackle financial emergencies or achieve your crucial financial goals.
Avail a joint home loan by looping in a co-applicant
Loan applicants having insufficient income, low credit score, higher overall EMI obligations, etc have higher chances of home loan rejection. Such borrowers can boost their loan eligibility by looping in a family member as co-applicant(s), preferably those with stable income and good credit score. Apart from boosting your loan approval chances, adding a co-applicant can also increase your eligibility for a bigger loan amount. Looping in female co-applicants can additionally fetch you lower interest rates from some lenders.
Opt for longer repayment tenure
Opting for a longer loan tenure will reduce your EMI, which in turn will increase your loan eligibility due to higher EMI affordability. However, opting for unnecessarily longer tenure can increase the overall interest cost of your home loan. Hence, those planning to avail home loans should use online home loan EMI calculators to find out their optimum loan repayment tenure on the basis of their repayment capacity and contributions to crucial financial goals. Borrowers can later on make prepayments to reduce their interest cost whenever they have surplus funds in the future.
Also, home loan lenders usually tend to prefer lending to those having total EMI obligations, including the EMI for the new home loan, within 50-60% of their monthly income. Hence, home loan applicants exceeding this limit can boost their loan approval chances by reducing their monthly EMI obligations through a longer loan tenure.
Compare home loans offers from multiple lenders
Interest rate, processing fee, loan tenure and other costs associated with a home loan can differ widely across home loan lenders based on their credit risk evaluation of home loan applicants. Hence, home loan applicants should compare as many lenders as possible before zeroing in on any specific lender.
As home loan lenders may offer preferential rates or other terms & conditions to existing customers, prospective home loan applicants should first approach the financial institutions with which they already have an existing consumer relationship. Then, they should visit online financial marketplaces to compare the interest rates and other home loan features offered by other lenders. This will allow them to find the best home loan deal with the lowest interest rate, optimal loan tenure and adequate loan amount.
Review your credit score before applying
Credit score is one of the first filters factored in by lenders while evaluating a home loan application. A good credit score, considered usually to be 750 and above, can boost your loan eligibility and also fetch lower interest rate from lenders. Hence, applicants should review their credit score before applying for home loans. Doing so would help those having a lower credit score to take required corrective measures to improve their credit score and then apply for a loan with an improved credit score.
Moreover, one should develop the habit of periodically reviewing one’s credit score, ideally at least once in three months. This would ensure sufficient time to take corrective efforts to improve the credit score and get the errors, if any, rectified at the earliest.
(By Ratan Chaudhary, Head of Home Loans, Paisabazaar.com)