Posted by Dream of owning a home, but the rising home loan interest rate makes you reconsider? Buying your own house is a lifelong dream for most of us, but a lot goes into signing off on a home loan. There are several eligibility requirements, like your employment status, age, credit score, and more, that you need to meet in order to qualify for the loan.
If you can pass these criteria, which usually differ from lender to lender, you can easily secure the required loan amount. But it is also very easy to be rejected if you do not pass as an ideal, satisfactory applicant. So, if you want to maximize your chances of getting approved, here are some strategies to increase your eligibility and guarantee a higher loan amount.
-
Calculate the Home Loan EMI
Before you start strategizing your home loan plan, use a home loan EMI calculator to estimate your EMI based on the loan amount, interest rate, and tenure. A prior idea of the loan amount and the EMI will help you plan accordingly, increasing the loan approval possibility.
-
Clear Existing Debt
If you have any outstanding loans, such as a car loan or a personal loan, you should first repay them as soon as possible. Once you clear your existing debt, your Fixed Obligations to Income Ratio (FOIR) or debt to income ratio will reduce, showcasing your ability to repay loans on time. It will position your profile as a low-risk application, communicating the fact that you can handle a larger loan. If your debt-to-income ratio is low, you can even crack good deals on home loans with a significantly lower home loan interest rate.
-
Submit a Joint Application
If you have a partner or a parent with a stable income, you can apply for a home loan through a joint application. The main benefit of applying as a joint applicant is that you can take out a larger home loan with a favorable home loan interest rate, as opposed to a smaller one you would have qualified for as a single applicant.
Moreover, a joint application boosts your eligibility since your income is combined with your co-applicant. However, at least one of the applicants should have a strong credit history. By adding a co-applicant or guarantor with a strong credit history and income, you portray a shared financial responsibility, strengthening your application.
-
Increase Your Credit Score
A home loan applicant with a high credit score is usually a bank’s first choice for a borrower. If you have a good credit score, one that is above 680, you have a greater chance of qualifying for larger loans with a beneficial home loan interest rate. If your CIBIL score is low, you can increase it by reducing your existing debt, especially high-interest debt, paying bills on time, and not applying for any new credit a few months before applying for the home loan.
A good credit score conveys good credit management habits, increasing your home loan eligibility. Calculate your potential EMI with a home loan EMI calculator and plan your home loan accordingly. Start working on improving your credit score months before you are set to apply to enhance your creditworthiness.
-
Choose a Longer Tenure
A home loan tenure refers to the total period over which you will repay your loan. It is important to consider the loan tenure when selecting a home loan, as it can impact the overall cost of the loan and your ability to repay it.
Typically, longer loan tenures result in lower monthly payments but may result in paying more interest over the life of the loan. If you want to increase your eligibility, opt for a longer home loan tenure.
On the other hand, shorter loan tenures may have higher monthly payments but can help you save money on interest in the long run. Ultimately, the decision of which loan tenure to choose should be based on your individual financial circumstances and goals. Use a home loan EMI calculator to determine the potential loan tenure and interest rates that are acceptable for you.
-
Declare Additional Income Sources
If you have other sources of income, such as a part-time business, rental income and so on, declare them while applying for the home loan. Additional income greatly increases your eligibility by establishing a stronger financial position through a higher FOIR, highlighting your greater repayment capacity. Declare all sources of income to boost your chances of securing a higher amount.
If you do not have an additional income source, determine whether your current income is enough to get the required home loan. If it does not, wait a while and try to increase your income through better job opportunities, starting a business or freelancing. Once you think you can apply for a better home loan, calculate your potential EMI and interest rates using a home loan EMI calculator.
-
Increase Your Down Payment
You can always plan and save money to pay a larger down payment and decrease the total loan amount. If you opt for a smaller loan, your monthly payments reduce, effectively reducing your long-term interest. Lenders readily give loans to borrowers who have already paid a large down payment since they are considered less risky. It increases your eligibility for loan approval. Moreover, as a trustworthy borrower, you can also extend the loan later.
-
Explore Other Lenders and Loans
It is essential to remember that home loan eligibility criteria differ according to different lenders. So, do your research before reaching out to institutions with your application. Some banks, lenders, or NBFCs might have more flexible eligibility criteria, offering a better home loan interest rate than others. You can also contact finance experts who can counsel you about your best options.
Meanwhile, also try to research specialized loans offered to borrower profiles like yours, which can help you secure a better home loan than the one you might be considering right now.
Conclusion
The main thing to remember is that you should never apply for a home loan in a hurry. It is crucial to conduct thorough research about all prospective loans, financial institutions and loan types to identify the most suitable for your current situation. Moreover, re-check your CIBIL report for any errors and choose floating or fixed interest rates.
With the help of a home loan EMI calculator, prior planning, and proper research, you are bound to qualify for a favorable home loan that brings you one step closer to realizing your dream of owning a house.
Frequently Asked Questions
-
Can I get a 100% home loan?
Most lenders do not provide a 100% loan-to-value (LTV) ratio because the risk is higher when the LTV is high. Thus, lenders usually have a limit to the loan amount, with a maximum extending to 80% of the property’s market value.
-
How much EMI can I afford?
You can use a home loan EMI calculator to calculate the feasible EMI. However, the EMI amount should generally not exceed 40% of the income as you also have other expenses.
-
Can I pay my EMI early?
Most lenders allow an advance EMI payment since it helps borrowers reduce their monthly repayments. Moreover, a longer loan tenure results in a higher interest payment, which an early EMI can easily decrease.