In the previous two years, housing prices have fallen and loan interest rates have reached historic lows, increasing the affordability of homes. In light of this, it stands to reason that if you’re thinking about buying a property, you probably want to borrow as much money as you can. Finding out if you qualify for a house loan as a first-time buyer takes some investigation.
The maximum loan amount a home loan applicant is allowed to borrow is determined by their home loan eligibility, which is a key reference point for banks, non-banking finance companies (NBFCs), or housing finance companies (HFCs) to determine the applicant’s creditworthiness and determine the maximum loan amount they are allowed to extend.
1. Improve your Credit Score or CIBIL Score
Home loan eligibility is usually increased by having a high credit score. One must make sure that all loan repayments are done on time in order to accomplish that. Your credit score will be affected if you are punctual with your credit card payments and monthly instalments (EMIs). Your credit score is negatively impacted by any delay or default. You may improve your credit score by maintaining a low credit usage ratio (CUR).
The bank often analyzes your credit score when you apply for a house loan to establish your creditworthiness. Banks and other financial organizations employ a range of credit bureau scores. Although there is no minimum score required for a house loan, a score of 750 or higher is typically seen to be a desirable score for approval. Low house loan interest rates are another benefit of having a high CIBIL score.
2. Get Rid of Your Debt Obligation
The debt-to-income ratio is important for the lending institutions to consider when determining a house loan applicant’s eligibility. Therefore, it makes sense for a candidate to pay off all debts as doing so will increase her or his eligibility for a mortgage. She or he should raise credit score by paying off outstanding bills.
3. Prevent Job Change
If you are salaried and want to apply for a mortgage, you must have been employed continuously for two years at the company. Regular work changes affect the amount of house loan eligibility. So that you can demonstrate two years of continuous service to an organization, preparation should be done well in advance.
4. Choose Joint Home Loans
If there are many earners in your household, applying for a mortgage jointly greatly boosts your chances of becoming eligible for a mortgage. Applying for a mortgage alongside your partner, parents, or both is the best course of action.
Co-borrowing improves home loan eligibility while also dividing the cost of repayment and providing tax advantages. Your home loan eligibility is improved when you have a co-borrower with a high credit score since it makes your EMIs more manageable.
5. Pick the Best Lender
Your chances of receiving a loan from a housing financing firm will be greater if you don’t have much credit history or are self-employed. The majority of home financing organizations have internal algorithms they employ to determine applicants’ creditworthiness and repayment ability when they have unreliable sources of income.
HFCs are occasionally a better option since they have carved out a place for themselves in this market and are knowledgeable about low-interest mortgages. In micromarkets where banks are absent, HFCs are also prevalent. Private or public sector banks are your choices if you are a salaried customer with a good credit score. Always choose lenders with a solid lineage and history. Lenders often take into account 85% (loan-to-value) when making loans. However, they may take into account up to 90% LTV if the lender has authorized the project or if they have a solid working relationship with the builder.
6. Pay back your Debts on time and in full
Sincere debt repayment can contribute to a high credit score, which can improve your ability to obtain a house loan. You should also have assets and savings because these things might improve your eligibility for a mortgage.
7. Create an account with the Lender of your Choice
It is a good idea to create an account with the lender you have chosen after researching different lenders and weighing the advantages each one offers. This should be done at least a year before you apply for a mortgage so you have time to get to know the lender. Your likelihood of being approved for a house loan will rise if you have an excellent working connection with the lender.
8. Choose a Longer Tenure
One might choose a lengthier loan term to boost their eligibility for a mortgage. A longer loan term reduces the EMI amount, but it ultimately raises the total amount of interest paid. As a result, if you choose a longer payback time, you must account for a greater cost of borrowing.
9. Don’t exceed 40% with your FOIR
The Fixed Obligation to Income Ratio (FOIR), which measures your debts to income as a percentage, is a crucial factor in assessing your eligibility for a house loan. The lending policies of the majority of financial institutions are based on the premise that your living expenditures will take up close to 50% of your income. At maximize the likelihood of getting the loan approved when choosing a house loan, you should ideally keep your FOIR to a maximum of 40%.
10. Increase your Down Payment if you can
Approximately 75% to 90% of the value of the property is covered by the financing provided by a financial institution or lender for a house loan. The remaining sum, however, could fall under your responsibility.Your loan value will be higher if you make a smaller down payment, which will result in higher interest payments. Therefore, it is usually recommended to put down a larger sum of money in order to avoid paying more in interest.
You may easily become eligible for a greater loan amount, a longer loan term, and better terms and conditions if you follow the suggestions above to raise your chances of being approved for a house loan. You ought to begin the procedure by first raising your credit ratings and, if necessary, correcting any inaccuracies.
For obtaining mortgage loans, creditworthiness is crucial. Continue to reduce your debt-to-income ratio while aggressively saving for a down payment on the house of your dreams.