Home to settle – Is this you are looking for? And, if you are thinking of taking advantage of the scene when interest rates are low, here are some TIPs to increase home loan eligibility. Taking a loan and building a home is a crucial decision. Hence you should be sure of your eligibility before you commit.
Although you must have planned for finance, it may happen that your dream home budget goes out of your pocket. It’s the situation when you have to make a decision, either to drop your plan or opt to apply for a home loan.
It is advisable to check your home loan eligibility before you apply for a home loan.
Home Loan eligibility is defined as the maximum loan amount that you can expect to get. These are based on certain criteria like – your current source of income, repayment capacity, age, credit score, and many others.
Here are some vital steps:
Clear Existing Loans
All your existing unclear loans would negatively impact your home loan eligibility criteria. The previous loan dues would majorly hit your home loan eligibility. A lender would always consider your outstanding dues before sanctioning your home loan.
Close the loans for which have only some EMI s left. This will help you increase your loan eligibility.
Make sure that you have cleared and closed your entire existing loans, collected no-due certificate, and get it updated in your CIBIL credit score.
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Extend Home Loan Tenure
Your home loan eligibility criteria are determined by your repayment ability of loan amount every month which is what we called as equated monthly installments (EMIs).
If you go with longer loan tenure, you would have to pay lower EMIs every month.
But longer loan tenure means you would have to pay higher interest to the lender.
Don’t worry, there is a solution to this. – Prepayment (Full or Partial)
Also, assuming your income would increase every year. You can increase the EMI amount every year with an increase in your income. You just need to restrict your expenditure to some extent and you would pay off the home loan amount in a lesser time period.
Keep FOIR below 40 %
Fixed Obligation to Income Ratio (FOIR) is a critical parameter for determining your loan eligibility. It is defined as the part of your source income currently being used for loan repayments.
Higher the FOIR, lower the chances for loan eligibility. Therefore, try to limit your FOIR to up to 40% in order to increase the chances of loan approval.
You can lower your FOIR either by increasing your source of income or you have cleared out all your debts.
Lower FOIR means your liabilities are less which enhances your disposal income, thereby increasing your repaying capacity.
Work on making Credit Report Strong
The home loan lenders or banks consider your credit report (CIBIL) to measure your repayment behavior and mark you as high-risk or a low-risk potential home loan applicant accordingly.
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The CIBIL score is one of the significant factors while the lender approves your home loan. Your CIBIL score is a measure of your capability to repay the loan amount within an agreed time frame. Always maintain a credit score greater than 750 (out of 900) to increase your home loan eligibility. This also helps you to avail a lesser interest rate from the concerned loan provider.
Include a Joint Home Loan for Higher Eligibility
Low income, low credit score are major factors for the rejection of home loan applications. You can increase your home loan eligibility by choosing a joint home loan instead of applying as an individual applicant.
A joint home loan means you need to consider a co-applicant who is your immediate family member (salaried or self-employed, Indian or NRI).
If your co-applicant is a woman then even better, as woman co-applicant enjoys a lower rate.
By this method, you would increase your eligibility loan amount to many folds because your co-applicants source of income is also considered by the lender in assessing your eligibility criteria. And other benefits as well such as tax benefits, share loan repayment amount, and so on.
Additional Income Source
If your eligibility is low due to income, then you can consider including other income sources such as rental income, interest earned from fixed deposits, or any bonus amount you have received from your employer or extra income earned as part of your freelancing work.
All these sources of income would back you as well to enhance your home loan eligibility criteria for buying your dream home.
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