Bigger loan amounts, longer loan tenures and risks related to the underlying property usually lead the home loan lenders to exercise caution when evaluating home loan applicants. This leads home loan lenders to look into their applicant’s credit score, income, repayment capacity, job profile, employer’s profile and property location and its features. If you have been a denied home loan before or think your chances of home loan approval are low, follow these tips to improve your chances for home loan approval.
Maintain a high credit score
On receiving your home loan application, lenders pull your credit score to assess your creditworthiness. They usually prefer approving home loan applications of those having credit scores of at least 750 as such high credit scores reflect greater credit discipline. This is also the reason why many home loan lenders fix lower home loan rates for applicants having higher credit scores. Those with lower credit scores have lower chances of getting home loan approval. Lenders approving home loan applications of such applicants usually charge higher interest rates to cover the higher credit risk. Therefore, those planning to apply for a home loan should check their credit score from all credit bureaus at regular intervals.
Individuals having lower credit scores should take required steps to improve it. Paying their credit card bills and EMIs by their due dates and avoiding multiple loan or credit card applications within a short span, etc. should improve their credit scores. They should also go through their credit reports from all credit bureaus to identify any inaccuracies or unaccounted outstanding loans/credit enquiries. On identifying any such issue in their credit reports, they should immediately report it to their respective credit bureau and lender for rectification. A rectified credit report may lead to an increase in their credit scores.
Add a co-applicant to your loan application
Some of the parameters that lenders consider when assessing your home loan application includes your credit score, income, repayment capacity, employer’s profile, occupation profile, etc. Those facing loan rejections due to low credit score or insufficient income/repayment capacity should consider adding a co-applicant to their home loan applications. A co-applicant is equally responsible as the primary applicant for the timely repayment of home loan. Thus, adding an earning member of their family as a co-applicant could reduce the credit risk for lenders and resultantly improve their chances of loan approval. The income and repayment capacity of both the primary applicant and the co-applicant combined would also increase their overall loan eligibility to avail higher loan amount or a shorter tenure. In case the primary loan applicant or co-applicant is a woman, then lenders might even offer concession on home loan interest rates. However, before applying for a joint home loan, remember that any delay/default in making the monthly payments would also cause the credit scores of both the primary applicant and the co-applicant(s) to drop.
Ensure your total EMIs remain within 50-55% of your monthly income
Before approving your home loan application, lenders want to make sure you have sufficient capacity to repay the loan on time. For this, they evaluate your loan repayment capacity. Applicants whose EMI obligations, including the EMI of the proposed loan, are within 50-55% of their net monthly income have higher chances of getting their home loan applications approved. Those exceeding the above-mentioned limit will have lower chances of availing home loan approval. Such applicants can choose longer tenures on their home loans to improve their loan eligibility and chances of availing loan approval.
Check for Interest-Only Home Loan Options with your Lender
Many banks and NBFCs offer interest-only home loan schemes, branded as Step Up Home Loan, Flexipay Home Loan, Interest Only Home Loan, etc. In such schemes, borrowers pay only the interest component of the loan during the initial years after which regular EMI payments (comprising both interest and principal component) start until the loan maturity. Having lower EMIs in the initial years of the loan increases the applicant’s loan affordability. Hence, such loans are best suited for those who are living on rent and intend to purchase an under-construction property. These are also beneficial for those who want to defer higher loan EMIs in the later years when they expect their income to be higher. Also note that while the loan scheme increases your loan affordability, it also leads to an overall increase in the overall loan repayment amount.
Avail Mortgage Guarantee-backed Home Loans
Mortgage guarantee-backed home loans are offered by banks and HFCs in association with the India Mortgage Guarantee Corporation (IMGC), India’s first mortgage guarantee company. IMGC offers home loan lenders partial credit risk coverage in the form of guarantees in case of loan default. This reduces credit risk for the lenders, allowing them to offer more relaxed home loan conditions to its applicants, in the form of higher loan amount through longer tenures (in case of applicants nearing their retirement age) and/or through higher LTV ratio.