If you don’t have the money to buy your dream home, a home loan could be the best financial aid. Experts recommend that you take out a loan, even if your savings are sufficient to purchase your home upfront. A loan can help you save money for an emergency and give you tax benefits. Your credit score will improve if you repay your EMIs on time.
You are looking forward to applying for a loan home but are unsure if the lender will approve your loan amount. You are not the only one! Many home loan applicants have similar problems. Here are some tips to help you improve your eligibility for a home loan and get a loan sanctioned with favorable terms and conditions.
1. APPLY TO A JOINT HOME LOAN
A co-applicant is a great way to increase your eligibility for a home loan. You can pool your incomes and increase your EMI repayment ability by co-borrowing your home loan with your spouse, parent, sibling, or immediate family member. Lenders will approve you for a loan with lower terms if you are a low-risk borrower.
2. MAINTAIN A HIGH CREDIT SCORE
Your credit score is one of the most important things lenders will consider when evaluating your loan request. Good credit scores are crucial in securing a loan amount and competitive interest rate.
Review your credit score and find any errors that could be affecting your score. These errors should be addressed immediately to improve your credit score. You can improve your credit score by doing the following:
- Regularly pay your EMI and credit card bills.
- Diversify your credit portfolio
- Keep your credit utilization ratio down.
- Keep your debt-to-income ratio low.
- Keep your old credit cards open to maintain credit limits. This is especially important if they don’t charge any membership fees.
A good credit score could make you a creditworthy borrower. Lenders may offer you a loan for your home with better terms.
3. PAY OFF EXISTING LOANS
Lenders will also review your creditworthiness and the amount of EMIs you have already paid. Higher EMIs mean higher default rates. To reduce your debt-to-income ratio, pay off existing loans first and then apply for a more eligible home loan.
Your total income divided by your credit card and loan EMIs will calculate your DTI ratio. Your DTI should not exceed 40%. This indicates that you can keep a healthy balance between your income and your debt.
4. CHOOSE A LONGER-TERM LOAN TENURE
A home loan is a long-term loan that has a large loan amount. It’s better to opt for a longer loan term with low EMIs. You may encounter financial difficulties over the loan term. Time is unpredictable.
You may be able to adjust your EMIs even when you are in financial trouble if the loan term is longer. Contrarily, a shorter loan term may result in a lower EMI, which can make it more difficult to adjust your budget over time. While a longer loan term may result in a higher interest rate, it will be lower than the late payment fees if you default on your EMIs.
5. HIGHLIGHT YOUR RESOURCES OF EXTRA INCOME
Before approving your loan request, lenders will examine your income and repayment capacity. For example, a rental income, a bonus, or income from a part-time job. Higher-income will increase your chances of loan approval.
6. KEEP ALL DOCUMENTS READY
You have a better chance of receiving a loan approval quickly if you keep all your documents available.
- Filled online form
- Photographs in passport-sized sizes
- Identity Proof – Aadhaar Card or Pan Card for government employees.
- Address proof – Aadhaar, passport, voter ID or utility bills from the last two months
For salaried employees:
- Salary slip for the last 3 months
- Bank statements for the last 6 months showing salary credit
- The most recent copy of Form 16
- Profil of a business
- Bank statement for the last 6 months
- The last 2 years of Income Tax returns and financials, including balance sheets, profit and loss accounts