Home loan: Check your credit score

Owning your own home is one of the finest feelings in the world. Nothing beats the sense of achievement and security when you first open the door to your brand new home. Purchasing your own home involves thorough planning and research and the most crucial factor which influences your decision is your financial ability. It makes sense to get all your reports and inspections completed before scouting for a house or applying for loan.
The low ticket home loans have decreased by half to 22 per cent of all loans during the last five years because of steep increase in property prices. As per the data by the Credit Information Bureau (Cibil), about 75 per cent of new accounts opened in 2011 had sanctioned amounts between R 5 lakh and R 50 lakh. This also means that the shift is clearly towards higher value loans, indicating property price rise and higher borrowing affordability. For instance, in 2011, approximately 48 per cent of the total home loans sanctioned in metro cities had a ticket size of more than R 20 lakh.

According to figures from Cibil, home loan enquiries have more than doubled from first quarter (Q1) of 2007 to third quarter (Q3) of 2011. The first three quarters of 2011 show an increase in home loan enquiries by 21 per cent over the same period last year.

The trends of acquisition of new home loans by banks show that in 2008, 23 per cent of new home loan borrowers acquired, were in the least risky segment. In Q2 2011, more than 62 per cent borrowers acquired were in the least risky segment. This indicates that banks are becoming more diligent in acquiring new customers. The credit score in India has fast become an integral risk assessment tool for banks and financial institutions for sanctioning any new credit. Data also shows that banks’ home loan customer acquisition quality has also increased, with 62.3 per cent of the enquiries being least risky with credit score of over 800. More than 88 per cent of new home loan borrowers acquired in 2011 had a score of 750 and above. Credit score assigned to a borrower ranges from 300 to 900. The higher your credit score, more likely you are to get your loan application approved. The reason being, closer the score is to 900, the more confidence the banks will have in the individual’s ability to repay the loan.

Hence, prior to starting you home loan hunt, you must access your score along with your credit report and assess your eligibility for the loan. However, it is important to understand that each bank will have its own credit scoring cut-off based on the credit sanctioning policies. Though your credit score is vital for your loan applications, banks may consider other critical factors like your income to debt ratio, your residential status, professional qualifications etc

Courtesy : Indian Express