Purchasing a house is a milestone for everyone, be it your first purchase or the fifth. And of course, everyone hopes to buy the best property within their budget. Considering most of us rely on various borrowing options for such substantial amounts, home loan eligibility is of prime importance today.
During the loan application process, your age, city of residence, employment profile, annual income, and credit score are closely assessed to gauge your credibility as a borrower. And any shortfalls or red flags will reduce the loan amount that would otherwise be available to you. Let’s look at the five ways you can enhance your home loan eligibility to ensure you avail the most favourable lending terms possible.
- Build and maintain a good CIBIL score
Your CIBIL score is crucial to your home loan eligibility. Lenders use it to assess your creditworthiness and your experience with handling credit. Inexperienced borrowers are a risk to lend to, especially given the quantum of funding available via this instrument. It is a bigger financial responsibility to repay this loan as the EMIs are larger, which is why many lenders require you to have a score of at least 700 to qualify.
That said, simply meeting this minimum requirement shouldn’t be the goal. To truly enjoy favourable loan terms and a cost-effective borrowing experience, you must work towards an excellent score. This is within the range of 750 and 900, and achieving this can take some time. Some of the best ways to go about it include:
- Paying your dues consistently
- Having a healthy credit mix
- Clearing any discrepancies or errors in your credit report
- Steering clear of multiple credit applications
2. Disclose all sources of income
When disclosing your income details, provide lenders with proof of all your sources of revenue. Many make the common mistake to only disclose their primary source and ignore other sources such as variable pay, rent earnings, and investment earnings. All of these tie into your net monthly income and can be used towards EMI repayment. Disclosing all income sources improves your home loan eligibility because it shows lenders that you can comfortably handle EMIs without compromising other essential monthly obligations. Remember to provide documents as tangible proof for all these income sources.
3. Apply with a co-applicant
Opting for a joint home loan is an effective way to improve your eligibility. Your co-applicant can be your spouse or your immediate family members, such as parents or siblings. Your best bet is to pick someone with a healthy credit score and with a stable source of income. From the lender’s perspective, two borrowers sharing the responsibility of repaying a home loan is a much lower risk than just one with a single income source. So, it is quite common for lenders to offer a higher loan amount to those who opt for a joint home loan. Some lenders may even offer a lower home loan interest rate, provided the combined financial profiles carry low risks of default.
4. Opt for a long tenor
In general, the rule to improving your home loan eligibility is to take steps that reduce the risk incurred by the lender. This is why applying with a co-applicant or showcasing a higher annual income helps improve your chances. Another way to improve your eligibility is to opt for a long tenor. By doing so, you greatly reduce the EMI amount, making repayment a lot more manageable but at the same time, the total interest outgo increases as well.
5. Pay off existing debt
A sure-fire way to enhance your home loan eligibility is to clear any existing debts you may have. By clearing your debt, you improve your credit score and your credit report reflects complete repayment of previous debt, which is a good sign for the lender. Secondly, any form of debt is a financial obligation that reserves a portion of your income.
The amount reserved gets counted towards your total debt-to-income ratio and ideally, you want to have the lowest ratio possible when you apply for a home loan. For most lenders, you must have a debt-to-income ratio of less than 40% to comfortably qualify for funding. Again, this reduces the risk incurred by the lender and you may even get offered better loan terms on account of your low-risk profile.
Enhancing your home loan eligibility should be a priority as doing so has several benefits, the most important of which is a reduced cost of borrowing. To ensure you borrow cost-effectively, consider the Bajaj Housing Finance Limited Home Loan. With this loan, you get a flexible repayment tenor, and an attractive home loan interest rate.
The loan also features other convenience-first benefits to ensure minimal delays and a hassle-free experience; for instance, you can have the documents picked up from your doorstep. They also offer expert counsel to assist you with home purchase undertakings. To avail these home loan features easily, apply online for quick and easy application.
