Taking home loan might probably be one of the biggest financial decisions in your entire life. Although home loans have several benefits, the entire process of applying for loan can be very stressful, given that lenders have varying criterion for approving home loans. In fact, home loan EMI can strain your finances, stretching itself to almost half of your earning life if you don’t plan well. A certain amount of financial planning along with preliminary study is required to ensure the approval of your home loan application at best possible terms and conditions. Here are some tips and suggestion for improving your home loan eligibility:
Check for the approval
In a highly unregulated sector like real estate, bank approval on residential projects is an important yardstick for gauging the credibility of the project. In fact, many banks come out with special loan offers for properties that are listed in their database of approved projects. Thus, it is important for you to check whether the property that you are interested in is approved by banks before closing on it. Also, make sure to check whether your residential property has been approved by local authorities and the title of the land is clear and valid.
Check your credit report
Credit score is the one of the most important factors that lenders use to assess your home loan application. Lenders pull out your credit report to find out your present borrowings and your past track record of making loan repayments. As a good credit score increases the probability of loan approvals, try to check your credit report at least six months prior to your home loan application. This will allow you some time to take corrective steps to improve your credit score or report the errors to the credit bureaus or existing lenders for rectification.
Assess property value
The value of your property will determine the down payment and equated monthly instalment (EMI) of your home loan to a large extent. As per RBI notification, borrowers have to shell out at least 10% of the property value for loans less than R30 lakh. For loans between R30 lakh and R75 lakh, your down payment will be at least 20%. Similarly, you will have to make down payment of at least 25% of the property value in case you seek higher amount (above R75 lakh). It is advisable to start saving early in order to fulfil down payment criteria. Also, try to make higher down payment in order to bring down your EMI and interest payout.
Keep proper documentation
It is imperative for you to have proper documents like ID proof, residence proof, income statement, bank statement and letter of allotment in place in order to avoid delay in loan approval or even outright rejection of your loan. Try to keep your bank statement as clean as possible as lenders may use it to evaluate your banking habits and lifestyle while approving your loan application. Ensure that your month-end balances in your savings accounts are higher than the probable EMI of your home loan to stress on your repayment capability. Avoid cheque bounces as they reflect on your bank statement.
Add co-applicants for higher loan eligibility
Lenders usually require all your monthly loan repayments to remain within 30–40% of your net monthly income. If your total loan repayment after considering your new home loan crosses 40% of your net monthly income, try to add in your working spouse or working children as co-applicant(s) in order to improve your home loan eligibility. Adding them would also increase the chances of approval if you are applying for one late in your career.
Proper planning is crucial for successful home loan application and easy approval. As steps like creating a corpus for down payment, improving your credit score and ensuring a stable career and income stream may require years of discipline and focus, it is important to inculcate financial discipline and the habit of regular investing early in your life. These will consolidate your financial position and ensure easy access to loans.
(The writer is, CEO & co-founder, Paisabazaar.com)