How To Improve Your Home Loan Eligibility?
credit score, etc. are used by banks to determine whether to approve or reject a borrower’s home loan application. In this blog, we will talk about key factors that will help you improve your home loan eligibility while applying for the loan.
Tips to Increase Home Loan Eligibility
Applying for a home loan does not guarantee loan approval as there are multiple factors involved when evaluating a loan application. Before you begin your loan application process, it is crucial to understand the factors that contribute to enhancing home loan eligibility. Listed below are some of the key methods that can help you improve your home loan eligibility and to get lower home loan interest rates.
- Take a Joint Loan – Adding a co-applicant to your home loan application enhances your home loan eligibility. If you add an earning family member with an amazing credit score, your chances of getting a higher loan amount increase. One of the major factors while evaluating the home loan eligibility of an applicant is the income of the applicant. If two earning members of the family apply for the loan, your repaying ability increases, and the loan amount can also get higher.
- Pay off your debts – The debt-to-income ratio is considered by the lenders when assessing your home loan eligibility. A debt to income ratio is defined as the amount of your income that goes into paying your existing debts such as a personal loan or a vehicle loan. Paying off your existing loans increases your home loan eligibility. Paying your credit card bills in a timely manner has a positive impact on your credit score. So if you have a good repayment record, it would add to your chances of loan approval. The possibility of getting the loan sanctioned is much higher if you are debt-free when applying for home loan.
- Check your credit score – The creditworthiness of a loan applicant is one of the key parameters considered by banks and NBFCs. A good credit score is a reflection of your repayment capability and helps improve your home loan eligibility. Keep an eye on your credit score when planning to apply for a loan. If you maintain a credit score above 750 then the likelihood of home loan approval and lower home loan interest rates from the lender are high. A lower credit score can be a reason for the rejection of a loan by the lender. Take corrective measures to improve your credit score before applying for the loan.
- Opt for longer tenure – Home loan repayment tenures can go up to 25 years. The longer the tenure of the loan, the lower the home loan EMI. The lower the EMI, the lower the risk for the lender. During the risk assessment process, the longer tenure loans are preferred by lenders because of the lesser risk involved. The lender’s risk is reduced as the EMI amount to be paid is much lower. Another benefit of longer tenure loans is that the lower home loan EMI allows people with lower income levels to apply for home loan.
- Declare additional income source – Declaring your additional income source, if any, enhances your home loan eligibility. Additional income can be anything ranging from mutual fund dividends to income through rental property. Anything that is over and above your in-hand income is considered as an additional income source. Showing additional income sources adds to the confidence of a lender as it indicates a higher repayment capacity of the borrower.
Conclusion
Home loan has increasingly become much more accessible and affordable for people who aspire to have their own home. Due to the advent of technology and easy access to the internet, application evaluation and loan approval processes have become simpler and faster. But before you start your home loan application process, it is important to understand the parameters used by lenders to gauge the loan repayment capability of the borrower.