If you are looking to avail a home loan to become the owner of the home of your dream, cracking the eligibility requirements is important and this area requires a bit of in-depth research. Home loan eligibility refers to the key reference point for the banks or the NBFCs (non-banking financial companies) or the HFCs (housing finance companies) to ascertain the highest loan proceeds an applicant of home loan is allowed to avail and evaluate your trustworthiness to repay the loan. For instance, suppose you want to avail a Kotak home loan. For this, first, you must submit a loan application. Once you do so, the Kotak home loan lender will evaluate your credibility and your repayment potential and based on this determine if your application must be approved. If you come across as a credible individual, the Kotak home loan would accept your application at a lower Kotak home loan interest rate. However, in the case you fail to come across as a credible individual, then the lender may either turn down your home loan application or agree to your application or home loan at a higher Kotak home loan interest rate and processing charges.
So, based on the aspects like your credit score, income, repayment potential, employer, debt-to-income ratio, etc., lenders conduct a thorough evaluation of your home loan eligibility. So, as an applicant for a home loan, you need to understand the distinct ways involved to increase your eligibility for a home loan and meet your dream of becoming a homeowner.
Increase your credit score –
A good credit score always enhances your eligibility for a home loan. To attain this, you need to ensure that all loan repayments are performed in full and on time. In case you are paying your credit card dues and your equated monthly instalments on time, then your seriousness of meeting your debt on time will show up on your credit score. Any delay or default will adversely affect your score. Keeping your CUR (credit utilisation ratio) low will even assist you to increase your credit score.
When you place an application for a home loan, then the financial institutions generally check out your credit score to decide your credibility. There are distinct bureau scores which are utilised by financial institutions and banks. There is zero minimal scores for the home loan but 750 and above is usually looked upon as excellent for the approval of a home loan. An excellent credit score even results in low home loan interest too.
Go for the joint home loan option –
In the case you hold multiple members earning a monthly income, then you can apply for a home loan jointly as this increases your chance of securing an enhancement in your chances of availing a home loan. The prudent option is to place an application for a home loan with your parents and/or spouse.
Co-borrowing not just increases the eligibility chances of a home loan but even divides the repayment burden and provides tax benefits. A co-borrower having a strong score enhances your affordability for EMI, thus increasing your eligibility for a home loan.
Go for higher repayment tenures –
To enhance your eligibility for a home loan, you can opt for a higher repayment tenure on the home loan. While a higher repayment tenure on a home loan reduces your EMI proceeds, it ends up enhancing your overall interest payable amount. So, you must factor in the highest borrowing cost while opting for a higher repayment tenure.
Clear off your debt liabilities –
The DTI or debt-to-income ratio is an important factor considered by financial institutions to assess your eligibility for a home loan. Thus, for a loan applicant, it makes complete sense to clear off all your loan liabilities, which would positively affect eligibility for a home loan. You must enhance your credit score and your potential to be eligible for a home loan by repaying your pending debts.
Keep your fixed obligation to income ratio (FOIR) less than 40 per cent –
Your debt-to-income ratio is referred to as FOIR or fixed obligation-to-income ratio. This is a crucial parameter for deciding your home loan eligibility. Ideally, when availing a home loan, you must ensure to limit your FOIR to 40 per cent to enhance your chances of availing a loan approval.
Declare your additional income source –
Your eligibility for a home loan enhances when you declare your additional income source. Adding another income source like rental income, your part-time business income, etc., can assist you in ameliorating your financial health and thus you must ensure to add in another income source as this would help in securing approval for higher loan proceeds. Additional income would enhance your FOIR and thus underline your repayment potential.
Pay a higher down payment amount –
A lender or financial institution finances a home loan to around 75 per cent to 90 per cent of the value of the property. However, you require bearing the cost of the rest of the amount in the form of a down payment amount. The lower the down payment amount, the higher would be your loan value and thus higher would be your interest constituent outgo too. So, it is always recommended for you make a higher payment of the down payment amount to avoid paying a higher interest constituent.
Avoid job switch –
In the case you are salaried and are looking to place an application for a home loan, then you must constantly work in the company for two years at a stretch. Constant job switches impact your eligibility amount for a home loan. Thus, planning must be done well in advance.
Select the correct lender –
In case you are self-employed or a new to credit individual, then you will have a good chance of availing a loan from HFCs (housing finance company). Most HFCs have developed an in-house model. This model helps you to ascertain your repayment potential and the credibility of those holding informal income sources.