Home Loan eligibility Factors

How to improve your home loan eligibility?

Countless people dream of owning a home. But due to the soaring land prices, only a tiny percentage of people can realise this dream. However, with the rising popularity of home loans, many people are turning to this financing alternative.

But is it that simple to obtain a home loan? The answer is no. Financial institutions have laid down quite stringent eligibility requirements. You will need to increase your home loan eligibility to qualify for this loan.

Top 9 ways to boost your home loan eligibility

1. Go for longer tenure:

Loan tenure is crucial for determining your home loan eligibility. A longer tenure means smaller EMIs. And it is always easier to repay debts when they are not putting a strain on your finances. The longer tenure also gives lenders the impression that the likelihood of home loan default is low. As a result of low risk, the loan approval chances are high. There are a few other advantages to having a longer tenure. It provides you with repayment flexibility and a few additional tax benefits.

Borrowers with low income who choose a shorter term will find themselves in one of three scenarios.

  • Rejection of home loan application.
     
  • Inadequate loan amount.
     
  • Home loan disbursal at a high-interest rate.

To understand the concept of longer tenure, let's take an example.

The table below shows the implications of two home loans with the same value and interest rate but different terms.

    Parameters     Home Loan (A)          Home Loan (B)      
    Loan Amount               Rs. 40,00,000     Rs. 40,00,000
    Interest Rate     9%     9%
    Loan Tenure     8 years     15 years
    EMI     Rs 58,601     Rs. 40,571
    Total Payable     Rs 56,25,678     Rs. 73,02,719
    Interest Payable     Rs. 16,25,678     Rs. 33,02,719


According to the table, the EMI difference between loan (A) and loan (B) is Rs. 18,030. But can you see the difference in the amount of interest payable? If you choose loan (B), you would pay an additional Rs. 16,77,041 in interest.

Thus, pick a tenure that will help you receive approval while also staying within your budget.

2. Apply for a joint home loan:

A joint home loan is an option if you believe you do not meet the lender's minimum eligibility. Under this arrangement, the joint income of both applicants is taken into consideration. A co-applicant can be your spouse, parents, or your close relative. The sole criteria here is that the additional applicant has a steady source of income and a strong credit history. The perks of a joint loan are not confined to enhancing your home loan eligibility; there are more to it.

  • Joint loans offer higher tax benefits. Depending on the case, both the applicants can separately file for a tax exemption. Section 80C and section 24 of the Income Tax Act 1961 deal with a home loan.
     
  • If your spouse is a co-applicant for the loan and a co-owner of the house, you can maximise the loan benefits. Women co-owners are eligible for a special interest rate.
     
  • In a joint loan, both the applicants are equally accountable for settling dues. Thus, it significantly takes away the debt burden.

3. Clear your existing debts

The home loan eligibility requirements are stricter. Lenders are cautious of lending to someone with multiple outstanding debts. Multiple debts suggest borrowers will have difficulty paying their dues in future. As a result, make sure you pay off your debts before applying for a home loan.

Consider debt consolidation if you have numerous outstanding debts with high-interest rates. Clearing your dues before raising your application makes you credible and allows you to acquire a home loan with ease.

4. Work on improving your credit history

A credit report is key to unlocking a low-interest home loan. A credit report is prepared after considering various factors. Some of these factors include debt repayment history, existing dues, transactions in older accounts, and a few more. A lender is unlikely to approve you for a loan if you have a low or no credit history. Usually, a credit score of 750 or more is considered suitable for a housing loan. Anything less than that makes your profile a riskier one. As such, work on improving your credit history/score to enhance your home loan eligibility.

The following are some of the most promising ways you can take to improve your credit report.

  • Set a reminder and pay your EMIs on the due date.
     
  • First-time borrowers should look for a consumerdurable loan, credit cards, or other short-term loans. It will assist them in establishing credit.
     
  • Clear the previous loan defaults, if any.

5. Declare all your income sources

To have diverse sources of income is no longer a luxury; it's a need,' goes the saying, which applies well to housing loans. Many people believe that while evaluating credit, lenders only look at the primary source of income. However, this is a big misconception. The more sources of income you have, the better your chances of getting a loan. You must furnish evidence of an additional/ secondary source of income to improve your home loan eligibility. Some common secondary income sources include earning from part-time business or freelancing, rental income, and a few more. Having a secondary income also assists in getting a high amount of loan.

6. Increase the downpayment amount

Even though the home loan is secured, lenders still like to keep the disbursement low to lower credit risk. The term "down payment" refers to the money you put down when you buy a house. Usually, the lender provides a home loan for a Loan-to-Value (LTV) of up to 80%. It means if the house you are buying costs Rs 50 lakhs, the borrower has to pay Rs 10 lakhs out of pocket. The lender will finance the balance amount of Rs 40 lakhs. However, the LTV percentage entirely depends upon your profile. Increasing a down payment increases your home loan eligibility if you have an average credit profile.

7. Choose your lender wisely

Whether it is in terms of eligibility conditions or interest rates, each lender has something distinct to offer. You must carefully review the minimum qualifying criteria of several lenders. Use a home loan eligibility calculator to determine your qualification.

8. Avoid frequent job/ business switch

Lenders check your occupation stability before sanctioning you a home loan. Frequent job switch gives the lender an impression that your income is not sufficient to cover your necessity. As such, if you are looking to buy a house on loan, start planning well before time. Decide on your lender beforehand. Check how much continuous employment your preferred lender requires.

9. Opt for a step-up loan

If you have a low income, request a lender for a step-up loan. It is a kind of arrangement in which the EMI is initially kept low. However, as time goes on, the EMI is gradually increased. Step-up loans are ideal for those just starting their careers but seeing a bright future ahead of them.

To sum it up

Your loan approval entirely depends upon your repayment capability. If the lender is confident that you will not default, the funds will be released quickly. Following the steps outlined above will boost your home loan eligibility and ensure that you obtain a home loan without trouble.

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