Every bank conducts a thorough credibility check before disbursing any form of credit - be it home loan, business loan, vehicle loan or even personal loan. Naturally, the process eliminates many applicants if they do not meet the bank’s eligibility criteria. This could put a potential homeowner in a tough spot. However, the rejection of a home loan does not mean that the applicant is left with no recourse. Because even if your home loan application gets rejected, there are ways in which you can improve your eligibility to be able to secure a home loan in the future. This article will take you through ways in which you can increase home loan eligibility.
Your credit score is a score generated by credit bureaus. It is a reflection of your past credit hygiene and helps all future lenders estimate your creditworthiness as a borrower. The factors that determine a credit score include payment history, credit mix, amount owed and the length of credit history among others. It is a number between 300 and 900, 300 denoting poor creditworthiness and 900 denoting the highest possible creditworthiness. Most lenders accept 750 as a good credit score to lend to borrowers.
A borrower can increase their credit score through timely repayment of prior loans, paying off their credit card bills in a timely manner and using prior credit availed for productive purposes. This can help them improve their chances of getting a home loan in the future.
It may be possible that your credit report contains some errors, which could cause your credit score to deteriorate. You must check your credit report provided by CIBIL or other credit bureaus and contest it to rectify any mistakes. Some common mistakes in your credit report that may be having a poor effect on your home loan eligibility include incorrect information, wrong credit limit or account status, incorrect payment history, a duplicate account and so on. You can fill out a form in the credit bureau’s dispute resolution section and expect it to be resolved within 30 - 45 days.
If you are married, you can consider applying for home loan jointly with your working spouse. Even if you’re single, you can bring aboard another family member who is working as a co-applicant of the loan. The onus of repayment is placed on two people instead of one, making it more likely for your home loan to be approved. Even if one co-applicant’s credit score is lacking, the other one’s can offset it, increasing your chances.
Credit utilisation ratio is the amount of credit you are presently using divided by the total amount of credit available to you.
Credit utilisation ratio refers to the portion of credit availed of by you as a percentage of the total amount of credit available to you. Lenders prefer to give out loans to those with a low credit utilisation ratio. Ideally, your credit utilisation ratio should be around 30%. Wondering how to increase your home loan eligibility through credit utilisation ratio? If your total credit limit is, say, Rs 10,00,000 and you have used up Rs 5,00,000. Your credit utilisation ratio will be 50%. A lower credit utilisation ratio signals to the lender that you do not need to fall back on loans for most of your needs, making you a more creditworthy borrower.
If you do have a high credit utilisation ratio, you can correct it by actively paying off your existing EMIs and increasing the proportion of your unused credit limit in comparison to the used up credit limit.
Credit cards, if not used judiciously, can amount to a lot of debt. Failing to pay off your credit card bills on time results in a poor credit score and can affect your ability to avail a home loan online. As a rule of thumb, you should pay off as much of your credit card bill as you can, whenever you can. This will help improve your credit score as well as credit utilisation ratio, making sure you’re in the good books of your lender. Paying off your credit card dues in a timely manner improves your overall eligibility to obtain a home loan.
A home loan down payment is the amount of money paid by the homebuyer up front, while the remainder of the price is paid subsequently in routine instalments. Paying a large sum up front as down payment does not necessarily increase the loan eligibility of the borrower. What happens is this - you pay off a chunk of the price of the house immediately, making the rest of the loan amount smaller. In case you are lacking in the home loan eligibility criteria, applying for a smaller loan amount increases the chances of your loan being disbursed.
Debt to income ratio refers to the amount of money owed by an individual in relation to the amount of money they earn each month. High debt to income ratios can have a poor effect on your home loan eligibility. This happens because the lender loses their confidence in your repayment ability if the amount you owe makes up a large chunk of the amount you earn. You can rebalance your debt to income ratio by clearing out your debt with any expendable income you may have. You may also consider opening up alternate sources of income to maintain a healthy debt to income ratio.
The repayment tenure is the time period over which you pay off your instalments. Typically, the size of each EMI contracts as the repayment tenure increases. By choosing a longer loan repayment tenure, you can create smaller EMI amounts and inspire confidence in your lender that you will be able to repay them. So, by spreading your EMIs over a longer period of time, you can increase home loan eligibility.
As discussed above briefly, you can expand your income sources in order to increase home loan eligibility. This can be done by securing a promotion at work, branching out into freelance work, opening a side business or increasing your investments. Having multiple sources of income can improve your debt to income ratio and have a great overall effect on your credit score.
Purchasing a home is a lifelong dream for many, and getting your home loan application rejected can result in immense disappointment. The good news is that the process of sanctioning loans isn’t arbitrary and the applicant does have some level of autonomy over their credit profiles. They can follow the aforementioned list and increase home loan eligibility for themselves by trying to apply for a home loan again.