Top 5 Strategies to Increase Your Home Loan Eligibility

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To enhance your home loan eligibility and increase the likelihood of approval for a housing loan, consider the following five strategies.

5 strategies to increase your home loan eligibility

Selecting a longer loan tenure can lower your EMI, thereby increasing your loan eligibility due to improved EMI affordability. (Image: Freepik)

Lenders assess various factors when reviewing your home loan application. The primary considerations include your income, age, remaining working years, loan-to-value (LTV) ratio, property attributes, and your current repayment obligations. Not meeting the criteria established by lenders may result in the rejection of your home loan application.

To enhance your eligibility and increase the likelihood of approval for a home loan, consider the following five strategies:

1. Increase your down payment or margin contribution

The Reserve Bank of India permits lenders to finance between 75% and 90% of a property’s value through a home loan. The borrower must provide the remaining percentage as a down payment or margin contribution. While many applicants aim to minimize their down payment, opting for a larger contribution offers several advantages. A reduced loan amount leads to lower equated monthly installments (EMIs) and decreased interest costs.

Furthermore, a higher margin contribution or down payment mitigates the lender’s credit risk, thereby improving the chances of loan approval, potentially at more favorable interest rates. However, it is essential to avoid depleting your emergency savings or investments designated for important financial objectives in your effort to increase your down payment or margin contribution. Such actions may necessitate borrowing at higher interest rates in the future to address financial emergencies or fulfill critical financial goals.

2. Secure a joint home loan by including a co-applicant

Individuals applying for a home loan who face challenges such as inadequate income, a low credit score, or substantial existing EMI commitments are more likely to experience loan rejection. To enhance their loan eligibility, these borrowers can consider including a family member as a co-applicant, ideally one with a stable income and a strong credit score. In addition to improving the likelihood of loan approval, the inclusion of a co-applicant may also allow for a larger loan amount. Furthermore, involving female co-applicants can lead to more favorable interest rates from certain lenders.

3. Choose a longer repayment tenure

Selecting a longer loan tenure can lower your EMI, thereby increasing your loan eligibility due to improved EMI affordability. However, it is important to note that unnecessarily extending the tenure may result in a higher overall interest cost for the home loan. Therefore, prospective borrowers should utilize online home loan EMI calculators to determine the most suitable repayment tenure based on their financial capacity and other essential financial objectives.

Additionally, borrowers can make prepayments to decrease their interest expenses when they have extra funds available in the future. Moreover, home loan lenders typically prefer applicants whose total EMI obligations, including the new home loan EMI, do not exceed 50-60% of their monthly income. Consequently, applicants who surpass this threshold can enhance their chances of loan approval by opting for a longer loan tenure to reduce their monthly EMI commitments.

4. Evaluate home loan offers from various lenders

The interest rates, processing fees, loan tenures, and other expenses related to home loans can vary significantly among lenders, depending on their assessment of the credit risk associated with applicants. Therefore, it is advisable for home loan seekers to compare a wide range of lenders before selecting a particular one. Since home loan providers may extend preferential rates or unique terms to their existing customers, potential borrowers should initially consult the financial institutions with which they already maintain a relationship. Subsequently, they should explore online financial platforms to assess the interest rates and features of home loans offered by other lenders. This approach will enable them to identify the most advantageous home loan options, characterized by the lowest interest rates, suitable loan tenures, and appropriate loan amounts.

5. Examine your credit score prior to application

The credit score is one of the primary criteria considered by lenders when assessing a home loan application. A favorable credit score, typically regarded as 750 or higher, can enhance loan eligibility and secure lower interest rates from lenders. Therefore, applicants should check their credit score before submitting a home loan application. This practice will assist those with lower credit scores in taking necessary corrective actions to improve their scores before applying for a loan. Additionally, it is prudent to cultivate the habit of regularly reviewing one’s credit score, ideally at least once every three months. This routine will provide ample time to implement corrective measures to enhance the credit score and promptly address any discrepancies that may arise.

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