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The approval of loan application is to meet various loan eligibility criterions such as age, income, credit score, location of property, repayment capacity, etc. The following are the tips to increase your Home Loan eligibility:
Look out for credit card loans or personal loans that you took a couple of years ago to purchase one of your fetishes that you are still repaying. This is clearly a red flag when a lender is trying to assess your eligibility.
Clear these loans, close these accounts, collect the loan closure or no-due certificate, keep it safe and ensure it is updated in your CIBIL credit score.
This is the most effective way to improve your home loan eligibility. On a longer tenure, the principal and the interest rate remain the same; only the net interest outgo rises. The increase in the tenure raises the loan eligibility because the burden of equal monthly instalments (EMI) decreases and the ability to repay improves. If you plan to take a home loan for 10 years and realise at the time of the loan appraisal that the monthly EMI is higher than you can pay, you could ask the loan officer to increase the tenure from 10 years to, say, 20 years. This will reduce the monthly burden.
As per RBI guidelines, home loan lenders can finance up to 75-90% of the property’s value (as LTV ratio). The borrower may have to contribute 10-25% as down payment. However, instead of arranging just the bare minimum down payment, it’s wiser to provide a higher contribution from your own pocket. The higher you contribute as down payment, the lower your LTV ratio would be, which will enhances your loan eligibility.
Another way of improving your eligibility is to include the income of father/mother/spouse or son. However, pre-check your bank’s guidelines on who could be a co-applicant, before applying for the loan. Many banks do not prefer to give the loan to brothers and sisters as co-applicants.
If your spouse is also earning, then it is a good idea to do joint application for a home a loan. This increases the home loan eligibility dramatically. This also means that the liability of repaying the home loan is left to both.
Fixed Obligation to Income Ratio (FOIR) is another vital parameter upon which the lenders evaluate customer’s loan application. It is the proportion of your income currently being used for repayment of mandatory expenses such as credit card bills and loan EMIs. Since breaching the 40-50% mark is indicative of major proportion of your income going out for mandatory debt repayments, lenders usually consider the chances of default in future for such borrowers as high. Therefore, to avoid rejection on ground of high FOIR, limit your FOIR to up to 40%-50% to enhance loan approval chances. If it is higher, consider paying off some of your existing debts, preferably the costliest ones such as personal loan or outstanding credit card bills.
Keeping your credit score high is in your own hands. You can do so by paying monthly instalments of your running loans on time and getting this information updated on CIBIL. For example, if an applicant has failed to repay 12 monthly instalments of a loan on a regular basis, banks do not accept his loan application as a standard practice. It is advisable to clear previous loans before applying for a new one.
Step up loans are a good way to enhance eligibility for those in professions where one would struggle initially, but the possibility of higher rewards are bright as they establish themselves like a doctor or a chartered accountant. Under this scheme, banks offer loan at lower EMIs in the initial years and gradually increase the EMI as you start repaying the loan.
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