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6 Tips to enhance your home loan eligibility

Most home buyers are unable to purchase a house outright due to the price tag attached to it. A home loan comes in handy to help you pay off over time. If you’re looking to increase your chances of home loan approval, let’s look at these six critical financial steps.

Introduction


As home prices continue to rise, you may need a bigger home loan. If you’re looking to obtain more borrowing power, taking practical steps and the right strategies can help enhance your home loan eligibility and improve your chances of securing the mortgage.

Here are the six tips you can follow to enhance your home loan eligibility:

1. Opt for an extended home loan tenure


Most people look for a shorter loan tenure to repay their loan. However, this may not exactly be a smart move for one’s eligibility. The shorter the loan tenure, the higher will be your EMI. This may impact your loan eligibility, as it will require a higher repayment capacity. Even if you choose a greater tenure, you can pre-pay your home loan as and when you have additional funds. Therefore, if you prefer a longer loan tenure, you can enhance your eligibility through a lower EMI.

2. Try to put down a higher down payment


A financial institution or lender can help finance a home loan to approximately 75-90% of the property value. However, you may have to bear the cost of the remaining amount. Lower the down payment, higher will be your loan value, and therefore higher payable interest.

For instance, the house is worth Rs. 1 crore, and the bank is offering a home loan at 20% interest. If you choose to pay Rs. 10 lakhs as a down payment, you will have to pay 20% interest on the loan worth Rs. 90 lakhs. Therefore, your applicable interest amount becomes Rs. 18 lakhs, over and above the principal amount. However, if you make a down payment of Rs. 20 lakhs, the payable interest amount will become Rs. 16 lakhs. Thus, you can save Rs. 2 lakhs by merely increasing your down payment.

Additional read: Benefits of investing in tax-saving mutual funds

3. Clear off all existing loans


Pre-paying your existing loan can help you enhance your CIBIL score. A good CIBIL score can be vital in improving your home loan eligibility. If you have a pre-existing loan, the lender may be under the impression you are already burdened with an earlier borrowing and may sanction a lower loan amount.

4. View taking a joint loan with your spouse


Opting for a joint loan can raise your eligibility. It can also help you avail a higher loan amount. If your co-applicant reveals a stable income and a higher credit score, you stand a better chance of availing of the loan.

5. Ensure you have an improved credit score


Every lender looks into a borrower’s credit score when assessing their home loan eligibility criteria. Typically, you would need a credit score of 750 to become eligible for the home mortgage. Suppose your credit scores are lower than 750. In that case, you may want to work on improving it by paying off existing loans and maintaining a credit utilization ratio of only 30% of your spending limit against your credit cards. Also, ensure that all your existing monthly installations and credit card debts are paid on time. Having good credit repayment behaviour can boost your home loan eligibility considerably.

Additional read: How senior citizens can save on tax

6. Reveal additional income


It can also help to show additional income sources to raise your home loan power further. Any income you receive from mutual fund dividends, fixed deposits, rental income from another property, side-business income etc., in addition to your net monthly income, can be an additional boost to increasing your home loan eligibility.

Conclusion


When you take the above mentioned steps to improve your chances of qualifying for a home loan, you can quickly become eligible for a higher loan amount, extended tenure and better terms and conditions. Begin the process by improving your credit scores and fix any errors if needed. Continue to lower your debt to income ratio and save actively for your down payment to buy the home of your dreams. 

Disclaimer
ICICI Securities Ltd.( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Centre, H. T. Parekh Marg, Churchgate, Mumbai - 400020, India, Tel No : 022 - 2288 2460, 022 - 2288 2470.  Please note, loans related services are not Exchange traded products and I-Sec is acting as a distributor to solicit these products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest.  I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.

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