Home loan is a big ticket loan to your dream land. Unlike personal loan or auto loan, a home loan is larger not only in terms of amount but tenure as well. So it is wise to plan a mortgage loan much in advance. Planning a loan helps you improve your eligibility thereby raising your credit worthiness.
How to improve home loan eligibility?
When you apply for loan you should consider shopping around and steal a deal that offers better interest rates and easy repayment schedule. You should compare home loans to locate the best available deal.
Whether you apply for SBI home loan or any other bank’s loan, your eligibility for home loan depends on a number of factors including your income, assets and liabilities. So in order to raise a fat loan for your dream home keep following things in mind:
- The first thing you should do before applying for a home loan is to try closing other credit accounts on your name. Be it a credit card loan, auto loan or a small personal loan, it would be wise to pay out the dues. You would need to close the account and get it updated on your credit report.
This simple act would raise your loan eligibility. It would increase your income to loan ratio and the bank would consider you capable of paying out larger EMI.
Take for example, Mr Ajay Singla has Rs. 1,00,000 monthly income. His monthly expenses include Rs 30,000 as household expense, Rs 20,000 as car loan EMI, while Rs 10, 000 EMI for education loan of his daughter. If Mr Ajay wants to draw a home loan the bank would consider his monthly income only as Rs 40,000 and not 1,00, 000 or Rs 70, 000.
Closing any of current loan accounts, his real income capability would increase and so would his loan eligibility.
- Besides your real income your variable pay or perks also matter for banks. A record or proof of these benefits would boost up your income. A simple example would be of travel allowance you get from your office or employee medical insurance. Looking at these covers, the bank’s risk on you reduces too as you are lesser stressed economically as compared to the one who doesn’t receive such benefits.
- You should not stick to one income from job or business. If you have multiple income options, it can certainly help your case. For example, if you have a vacant property you can always add a rental income to your portfolio. So always try to have multiple income options.
- Besides looking for additional avenues of raising your income level, you may also use your spouse’s income to apply for a joint application. A shared responsibility with large income base would definitely increase your credit worthiness and thus you would be able to raise a better loan amount and interest rate at the same time.
- The longer you pay EMIs, the smaller gets its value. So instead of opting for 10,000, 00 loan for 10 years, you may opt for 10,000, 00 for 15 years or 15,000, 00 for 20 years. The banks would however not increase loan tenure above 25 years.
- Study your credit information report thoroughly before you apply for a home loan. You should have 2 things in mind while studying the credit report- 1) look out for errors, if any, and get them corrected to improve the score; 2) to find out gaps that can be filled to improve the score.
For example: Small things like multiple loan queries, fuller utilisation of credit limit, delayed payments or multiple small loans are few things that can be easily rectified if you practice some discipline. Small steps like these can improve your score dramatically within a few months.
With better score, your eligibility for loan would increase too and you would be offered lower home loan interest rates too.
By knowing your score and report you practically know which banks would consider your loan application. A rejected application affects your score so you should always apply for loan after a proper homework.
- Last but not the least, as important it is to have a robust income flow to win bank’s risk appetite as is to showcase to bank that you have lower expenses. This boosts up the confidence of bank.
Thus the most important part of improving home loan eligibility is to have a constant and stable income flow along with lower expenses.