How senior citizens can boost home loan approval chances

Home loans are secured by nature. Still lenders often follow a very cautious approach while evaluating home loan applications – particularly of senior citizens — given the uncertainty surrounding their life span and income. However, availing a home loan is not a closed chapter for those approaching their golden years.

Here are some smart ways for senior citizens to improve the chances of home loan approval:

1. Avail a joint home loan with a co-applicant

One of the best ways to overcome income and life span-related uncertainty is to rope in a co-applicant while applying for a home loan. Your co-applicant should be an earning member of your family, with a stable income and better credit profile.

As the income of a co-applicant is taken into consideration by the lenders while evaluating the loan application, it improves the chances of getting a loan. Moreover, you can also apply for a higher loan amount, if need be. However, keep in mind that any delay or default in home loan repayment would negatively affect the credit score of both the primary borrower and the co-borrower.

2. Opt for lower LTV ratio

LTV ratio is the proportion of the property’s construction or acquisition cost sanctioned by the lender as a loan. The remaining cost of the property has to be contributed by the borrower from his own resource as down payment. According to RBI guidelines, the maximum LTV ratio of a home loan can be up to 75-90% of the property’s cost. The final LTV ratio of a home loan is fixed depending on the risk assessment of the lender and the loan amount. As a lower LTV ratio reduces the credit risk for the lender, you can enhance your home loan eligibility by contributing higher down payment to reduce the LTV ratio. Lower LTV ratio would also reduce the loan amount, which in turn would reduce interest cost and EMI burden.

3. Assess your EMI affordability

Another crucial factor determining the approval of your home loan application is the lender’s assessment of your EMI affordability. Lenders usually require the loan applicant’s EMIs, including the EMI of the new home loan EMI and the existing EMIs, if any, to be within 50-55% of the applicant’s net monthly income. Hence, the home loan applicant needs to find his optimum home loan EMI accordingly before making the loan application.

EMIs depend on the amount of the loan, loan tenure and the interest rate. A shorter tenure implies bigger EMIs and lower interest cost, whereas a longer tenure implies smaller EMIs and higher interest cost. Submitting a home loan application after arriving at the optimum EMI will enhance the chances of your loan approval and reduce the chances of EMI defaults due to unintended aggressive repayment schedule. While arriving at the optimum EMI, the loan applicant should also factor in his unavoidable expenses, health-related costs and monthly contributions towards crucial financial goals.

4. Maintain a good credit score

Lenders generally consider applicants with credit scores of 750 and above as financially disciplined and, thus, carry lower risk of default. Hence, those with a credit score of 750 and above have higher chances of loan approval. Many lenders have also begun offering lower lending rates to those having higher credit scores.

It is also important to maintain good financial habits like repaying your existing EMIs or credit card bills by their due dates, containing your credit utilisation ratio within 30%, keeping track of loans guaranteed or co-applied by you, avoiding multiple loan or credit card applications within a short span.