Housing finance companies and banks often have stringent criteria when it comes to home loan eligibility. Borrowers can do a few crucial things to increase their eligibility such as paying off all existing loans.
“Borrowers may also submit proof of any variable pay, which could include year-end bonuses as well as monthly or quarterly incentives. Also, it helps to keep your fixed obligations to income ratio or FOIR (total debt/monthly salary) below 40 per cent, as it shows that you’re a responsible borrower,” says V. Swaminathan, CEO of Andromeda, a loan distributor firm that runs digital arm Apnapaisa.
Here are five ways in which you could increase your home loan eligibility:
Add A Co-Applicant
Adding a co-applicant who’s working, such as your spouse, boosts your home loan eligibility as the lender would consider the combined credit scores. You may also have a good chance of getting a much higher loan amount as the combined income from two sources would be higher.
Show Additional Income Sources
When you declare any additional income, you may be receiving such as rental money or income from a part-time business, it invariably boosts your financial health. “The added income also positively affects your FOIR, helping you secure a higher home loan amount,” says Swaminathan.
Pay Off Old Debt
If your debt obligation is high, lenders will assume that you don’t have the discipline or the resources to pay off your loan and that you would not be able to pay all your EMIs.
Also, paying off old debt, including personal loans and credit card debt, will lower your FOIR as a larger portion of your income will be free to pay up the new EMI. Clearing old debt shows your lender that you’re credible and makes getting a home loan easier.
Maintain A Credit Score Above 750
Credit score is the de facto standard that any lender uses to gauge the repayment capacity of a borrower. Maintaining a credit score of 750-plus establishes your high creditworthiness and can help get home loan approval.
Make A Higher Downpayment
Most lenders will finance 75-90 per cent of the actual property value. “So, if you can put down a higher initial downpayment, it can help you avail a home loan easily,” adds Swaminathan. Also, a longer home loan tenure will result in a lower EMI amount, making the loan more affordable for you. However, this may come with the burden of paying a higher interest cost.
If you’re a salaried person, you should avoid changing your job at the time of loan application. Most lenders prefer borrowers who have been part of an organization continuously for two or three years at least.
Moreover, your eligibility is higher if your income is on the higher side, simply because your repayment capacity would then be higher. Your total loan amount would be increased if your income is high.
Age is also a big factor when it comes to home loan eligibility. The younger you are, the higher would be your chances of securing a loan.
Then there’s occupation, of course. If you’re working at a government organisation or a fairly big, well-known private enterprise, your credibility would be higher.
Make the right financial choices to be eligible for a higher amount of home loan.