Homeownership is one of the most significant financial milestones, and your biggest financial asset. It may even have taken you years of planning, decision-making, saving, and scouting for your ideal home. So when it comes to comes to securing a home loan, which again is a big decision, the process can sometimes be daunting.

But if you have settled on the fact that you need your own home, there are strategies you can use upfront to improve your chances of bagging a loan quickly. The home loan journey actually begins even before you set foot in a prospective home or talk to an agent. Early preparation can be key to a smooth home-buying process and securing your dream home.

Enhance your debt-to-income ratio

When looking at your ability to meet the financial requirements of a home loan, the first step is to evaluate your debt-to-income (DTI) ratio. This is done by taking your total monthly debt obligations and dividing them by your monthly income. A DTI ratio of 50% or lower will significantly increase your odds of obtaining loan approval. If your DTI is too high, consider paying down some of your debts or exploring ways to increase your income. Both actions can effectively reduce your DTI.

Do the paperwork ahead of time

In the loan application procedure, lenders need a range of documents including your income statements, tax returns, bank statements, verification of employment, and legal documents related to your property. It will be good if you can gather and neatly organise all the documents, and create a file to keep all these documents in one place. It will avoid the last-minute search or incomplete documentation which could slow down the application process.

Also Read: How GST and RERA have simplified home-buying process

Select a sensible loan amount

In order to ensure you don’t bite off more than you can chew, it’s crucial that you assess your financial state and opt for a loan amount that matches your ability to repay. If you attempt to borrow more than you can comfortably afford, this could raise red flags for your bank and heighten the risk of your application being turned down. At the same time, it is also important to estimate the total financial assistance required to meet the total cost of house. Overfunding or underfunding, both can be dangerous. For a helping hand in determining a suitable loan amount, consider utilising online calculators or seeking advice from a mortgage professional. Both methods can provide you with a solid estimate based on your income, expenses, and long-term financial aspirations.

Cut back on new credit applications

When looking for a home loan, it’s in your best interest to avoid taking on new credit cards, loans, personal loans or car loans, or any other forms of credit. This is because a multitude of credit inquiries within a short time can affect your credit score to dip. Instead, it’s advisable to maintain a stable financial profile and hold off on any new credit applications until your home loan gets the green light.

Strengthen your credit score

A strong credit score is one of the most crucial factors in determining loan approval. This number is an important one as it not only affects the interest on your home loan, but also whether the loan will be approved at all. So, it’s imperative to check your credit score upfront. In fact, it is advisable to check your credit report at least once a year and rectify any errors. For a good credit score, repay your loans on time, and cut back on debts wherever possible. To resolve any errors/misreporting in the report, you may raise a grievance on the Credit Bureau site, which will take up the matter with the concerned Bank/FI. Improving your credit score demonstrates financial responsibility and increases your chances of securing a loan. During this time also avoid and don’t apply for any other type of loans.

Also Read: Senior Living Home: What is it and why is it set to gain prominence?

Maintain stable employment

Demonstrating financial stability is another essential. Banks assess your income stability and job history to gauge your ability to repay the loan. Avoid changing jobs frequently during the loan application process, as it may raise concerns about your income stability. If a job switch is unavoidable, ensure you provide comprehensive employment documentation to the bank, such as offer letters, salary slips, and tax returns, to mitigate any doubts about your income stability. Consistent income from the same job or if you are self-employed then regular returns and income proof are some of the documents that you must keep ready.

Get a pre-approval

Securing a home loan requires careful preparation and attention to details of your financial records. Take it one-step further, consider getting a fully underwritten pre-approval. This is a more detailed process where the lender verifies your income, assets, debts, and other financial information upfront. The loan then goes through the underwriting process so that you can get final approval for a loan quickly once you’ve found your dream home and your offer has been accepted. This preparation can save time and stress later on.

Create a down payment buffer

A larger down payment improves your chances of bagging a home loan. Hence, saving for a substantial down payment showcases your financial discipline and reduces the loan amount, making your application more attractive to lenders. Aim to save at least 20% of the property value as a down payment, as it may also help you avoid additional costs like private mortgage insurance (PMI). Considering the Indian real estate market, the more you save, the better you stand. It will ensure that you get a home loan faster.

Perfect Property

Every lender would prefer a perfect property. Perfect not by looks but by books. The documents of the proposed house should be complete viz. title documents, approved map plan, approved locality, etc. If you are new to the real estate world, consider getting an opinion from a Banker or legal expert.

Affordable Housing – Better ROI

One better edge for small home buyers is that if you manage to fit in the Priority Sector guidelines of RBI, then you can bag a cheaper interest rate. As per the present guidelines, the total cost of house should be upto Rs.45 lacs in metro centres (Rs.30 lacs in other centres) with loan amount up to Rs.35 lacs and Rs.25 lacs respectively. Do talk to your Banker for details.

This article has been written by Raghav Aggarwal, Chief Risk Officer, Capital Small Finance Bank Limited. Views expressed are personal.