With the rising cost of real estate property, whether you are buying a new property or one that is for resale, a ready-built one or are going to construct one of your own, doing it without taking a home loan is next to impossible for most individuals, both salaried and entrepreneurs. A home loan is one of the biggest loans of people’s lives. With a home loan also being one of the best tax-saving solutions as well, most people smartly choose to take a home loan as soon as they can afford to, which could be a couple of years into their careers. While earlier a home loan was the domain of married couples, today more single individuals too are choosing to invest in a property of their own.
Home loan eligibility depends on a number of factors such as your income, income sources, income stability, age, existing liabilities and savings, credit score, etc. Some of these are in your hands and can be improved or changed while some are unchangeable. Let’s look at the factors that are in your hands and which you can take steps to improve in order to improve your home loan eligibility and thus, increasing the chances of your home loan getting approved.
1. Get a down-payment ready
Most banks provide anywhere from 75% to 90% of the property cost as the home loan. This means that you anyway have to arrange for 10% to 25% of the property cost as down-payment. The higher the down-payment, the lower will be the loan amount that you actually require and apply for. This automatically decreases your credit risk and increases your approvability in the eyes of the lender, as the amount they have to provide is lesser and thus less of a risk for them. You can start accumulating funds for a down-payment by planning ahead. Investing for 5 years in aggressive hybrid funds or equity mutual funds. If you have shorter time, you can park your savings in fixed deposits, bond funds, or recurring deposits. Do keep in mind what the inflation rate could be in a couple of years, and also extraneous charges such as administrative fees, processing fees (which can be anywhere up to 2% of the loan amount) when planning on a ballpark figure for your down-payment.
2. Clear your outstanding loans
While this may not be always possible or practical, there is no harm in trying your best to clear any of your outstanding loans as much as possible, whether it is a personal loan or credit card debt. You can make partial pre-payments any time you get a windfall such as a tax refund, bonus, or even a gift from a wealthy relative! Clearing your outstanding loans has the advantage of increasing your credit score, which helps to attract better interest rates, higher loan amounts, and more favourable loan tenures from lenders. The ongoing mandate is that no more than 60% of your income should be taken up by your EMIs, so make sure this is in order before you apply for a loan. If you are foreclosing a loan, it is important to get the no-dues certificate from the concerned lender as some banks may require this to be submitted along with the list of documents to get loan approval. Prepaying your loans also means you have more money in hand for savings, investments, and your home loan, not to mention that you are saving on all that interest that you would have otherwise been continuing to pay over time, which is itself a big benefit for you.
3. Choose a longer repayment tenure
When you choose a longer repayment tenure, even if it means you will be paying more interest over a period of time, it also means your monthly commitment to the loan is reduced, which means the fixed obligation to income ration is reduced.
However, once you have chosen this, it is smart to try to make prepayments whenever you can. For floating interest rate loans, there is no prepayment charge while for fixed interest rate loans it could be either waived off or be charged. Use any windfall you may get, such as a yearly bonus, tax refund, cash gift from parents, dividend from mutual funds, etc., to pay this off. Even one EMI paid back as a prepayment will reduce your interest rate and repayment tenure considerably.
4. Add all your sources of income or co-applicant with income
Adding all the sources of your income, whether rental, bonus amount, consultancy fee, or freelance fee (if you have a side business) can considerably enhance your eligibility for the loan. Adding a co-applicant, who could be a spouse, parent, child, or other close relative, who has a stable source of income, will also increase your loan eligibility.
Look into the options given above and plan ahead by browsing for the best home loan offer in India. You will not regret the extra time and planning you did for this as it not only increases your chances of getting your loan approved faster, but you could also get more favorable interest rates and a higher loan amount.
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