Home loan interest rates, despite the rise in repo rates, still are low owing to their secured nature. This may prompt many of you to take a plunge and purchase the property you have set your eyes on. However, if you have been thinking that just having a high credit score is sufficient to get approval for 1 crore home loan EMI or 5 crore home loan EMI, then you are wrong. Read here to understand why.
Debt to income ratio –
Lenders consider several ranges of parameters while determining your financial fitness. A credit score is only one of them but a crucial one, nonetheless. One of the parameters even is your potential to repay the loan debt that you are availing. So, for example, if you are already paying your personal loan coupled with an education loan, then lenders may consider your debt-to-income ratio to understand your potential to manage your debt repayments. Debt to income ratio is computed by dividing your overall monthly debt obligations, like credit card payments, personal loan payments, car loan payments, etc., by your monthly income.
Lenders tend to compute this ratio on a monthly basis to figure out a realistic number. Lenders consider this specific ratio to understand how much additional debt you may be able to take on well and comfortably along with your existing burden. Having a low debt-to-income ratio infers you hold a good balance between your income and debt. Usually, lenders want your debt-to-income ratio to be 50-60 per cent as a threshold limit. A limit higher than this may discourage lenders from lending you the loan.
However, having a high debt-to-income ratio or DTI does not infer you cannot avail of a home loan. If you hold a high debt-to-income ratio, then you can still include your spouse in placing an application for the home loan as a sole applicant. As lenders also consider your joint applicant’s credit profile and debt-to-income ratio, if both are on a positive mark, then it may boost the lender’s confidence in you to provide you with a loan offer. And over a time period, you can lower your thorough debt burden by using the bonus or cash windfall for making the repayment. This would ameliorate your borrowing power and even assist you in managing your financial situation well, particularly during financial exigencies.
Read on here some of the other important ways of boosting your eligibility for a home loan –
Go for a reduced LTV ratio.
LTV, also known as loan-to-value ratio, shows the proportion of your property’s value disbursed as a loan by a bank or HFC. When the lender assesses your application for a home, they tend to fix a ratio based on your credit profile as well as your risk evaluation. In case banks deem you low on credibility, they may provide you with a low loan-to-value ratio, which means you must shell out a bigger amount through a down payment. The Reserve Bank of India has capped the maximum LTV ratio at 75 – 90 per cent of the value of the property.
In case your debt-to-income ratio is high, one of the best ways to ameliorate your chances of getting approval for a home loan is by applying for a home loan with a higher down payment amount. Making a higher contribution through a down payment not just lowers your LTV ratio but even ameliorates your loan eligibility as well as your approval chances.
Include a co-applicant or guarantor in the loan
When lenders assess your application for a home loan, and if you have a high debt-to-income ratio, then the lender may require you to include a guarantor or co-applicant in the home loan to ameliorate your chances of home loan approval. You must consider including a co-applicant or co-guarantor with a low debt-to-income or fixed obligation-to-income ratio and high credit score, as this will not just increase your chances for home loan approval but even enhance your chances of availing the loan at a lower interest rate.
Note that as co-applicant or loan guarantor is liable equally for the home loan repayment, any missed, delayed or default in loan repayment not just negatively impacts the credit score of you as the primary borrower of the loan but also the co-applicant or guarantor.
Also Check: 5 Crore Home Loan EMI
Approach HFCs and NBFCs
Compared to banks, HFCs and NBFCs have relaxed and less stringent parameters for assessing your home loan application. Thus, you, as a home loan aspirant can thus, approach such financial institutions if you have witnessed rejection from banks, as chances for loan approval from HFCs and NBFCs are higher. A major thing you must note is that HFCs and NBFCs have less stringent terms and conditions for approving your application for a home loan; they compensate for this by charging you a higher rate of interest on a home loan than banks like public sector banks and private sector banks.
Additionally, when you place an application for a loan with multiple lenders to assess your application, every lender may fetch your report mentioning your credit profile and your activities from the credit bureaus, which results in what is called a hard inquiry. Such inquiries are inputted into your report, which lowers your score massively. Thus, when you place an application for a home loan, avoid doing so directly with each and every preferable lender. Instead, consider visiting the online lending marketplaces to input your details and see what home loan deals are available to you as per your income, credit profile, age, location, etc. From here, you can apply for a home loan. Placing an application for a home loan through such portals not just gets processed quickly but also does not create any negative impact on your credit score, as such loan inquiries are looked upon as soft inquiries.
