Lenders take several factors into consideration while evaluating your home loan application. Top among them are your income, income, age, remaining working age, LTV ratio, asset characteristics and your current loan repayment obligations. If you do not meet the limits set by the lenders, your home loan application may get rejected.
Here are five smart ways to increase your home loan eligibility and approval chances:
Make a higher down payment or margin contribution
RBI allows lenders to finance up to 75%-90% of the value of the property through home loans. The remaining proportion of the cost of the asset should be given as an advance or margin contribution from the borrower’s own resources. While most home loan applicants aim to contribute a minimum down payment or margin amount, making a higher down payment or margin contribution has its advantages.
Firstly, using a lower loan amount will lead to smaller EMIs and lower interest costs. In addition, making a higher margin contribution or down payment also reduces the credit risk for the lender, which increases the chances that your home loan will be approved at potentially lower interest rates.
However, in your quest to make a high down payment or margin contribution, avoid compromising your emergency fund or investments aimed at significant financial goals. Doing so may force you to borrow at a higher interest rate in the future to deal with financial emergencies or to achieve your important financial goals.
Avail Combined Home Loan by looping in co-applicant
Loan applicants who have insufficient income, low credit score, high overall EMI obligations, etc. have more chances of getting the home loan rejected. Such borrowers can enhance their loan eligibility by including a family member as co-applicant(s), preferably one with stable income and good credit score. Apart from increasing your loan approval chances, adding a co-applicant can also increase your eligibility for your loan amount. The inclusion of female co-applicants may also lower the interest rates of some lenders.
Opt for longer repayment tenure
Taking a loan for a longer tenure will reduce your EMI, which in turn will increase your loan eligibility due to higher EMI affordability. However, opting for an unnecessarily long tenure may increase the overall cost of interest on your home loan. Hence, those planning to avail a home loan should use an online home loan EMI calculator to know their optimum loan repayment tenure based on their repayment capacity and contribution to important financial goals. Borrowers can then make advance payments to reduce the cost of interest, as long as they have surplus funds in the future.
Also, home loan lenders often prefer loans to those who have full EMI obligations including EMI for a new home loan within 50-60% of their monthly income. Hence, home loan applicants crossing this limit can increase their chances of loan approval by reducing their monthly EMI obligations through a longer loan tenure.
Compare Home Loan Offers from Different Lenders
The interest rate, processing fee, loan tenure and other home loan costs can vary widely among home loan lenders based on the credit risk assessment of home loan applicants. Hence, home loan applicants must compare as many lenders as possible before choosing any specific lender.
Since home loan lenders may offer prime rates or other terms and conditions to existing customers, potential home loan applicants should first approach the financial institutions with whom they already have an existing consumer relationship. They should then visit the online financial markets to compare the interest rates and other home loan facilities offered by other lenders. This will allow them to find the best home loan deal with the lowest interest rate, optimum loan tenure and the right loan amount.
Your credit score is one of the first filters that lenders consider while evaluating a home loan application. A good credit score, which is generally considered to be 750 or above, can enhance your loan eligibility and also fetch you lower interest rates from lenders. Therefore, applicants must check their credit score before applying for a home loan. Doing so will help people with low credit scores to take necessary corrective action to improve their credit score and then apply for a loan with a better credit score.
Additionally, one should develop the habit of checking their credit score from time to time, ideally at least once in every three months. This will ensure sufficient time to take corrective action to improve the credit rating and rectify the errors, if any, at the earliest.