While planning to purchase a dream home, prospective homebuyers must analyse how much money they will put from their pocket and how much Home Loan they will need from a housing finance company. There is an upper limit on how much a lending institution can lend to buy a house, and the loan eligibility varies for each individual. Home Loan providers calculate each applicant’s eligibility based on several factors, including income, credit score, down payment and repayment capacity.
A Home Loan eligibility calculator helps calculate the accessible loan amount based on the property value, income, financial obligations, and other crucial parameters. This article gives the five most important tips to enhance Home Loan eligibility and get the maximum loan amount.
1. Improve Your Credit Score
A credit score is a crucial number that indicates an individual’s credit history. Based on that, lending institutions determine an applicant’s likelihood to repay the debts on time. If the credit score is high, say more than 700, it indicates that the applicant has an excellent credit history and is likely to repay the borrowed loan on time. On the other hand, if the score is low, it indicates a high probability of missed EMIs and loan default. So, every aspiring loan borrower should maintain a high credit score by following these tips:
- Always pay current loan EMIs and credit card bills in full on or before the due date.
- Avoid applying for multiple credit products simultaneously, as each credit application attracts a fresh credit check, which reduces the credit score by a few points.
- Use only 30-40% of the available credit limit to keep the credit utilisation ratio low.
- Diversify the credit portfolio with secured and unsecured loans and credit lines.
- Retain old accounts to extend the credit history and hold on to their credit limits.
Since finance companies want to keep their money safe, they lend to individuals who can repay their loans without delay or hassle. That is why they avoid giving loans to individuals with low credit scores. On the other hand, those with a high credit score can get higher loan amounts at lower than current Home Loan interest rates.
2. Opt for a Longer Tenure
The Home Loan tenure is a major factor determining the monthly EMI payable. Selecting a longer term distributes the loan amount into more EMIs, thereby reducing each EMI’s payable amount. The smaller the EMIs, the easier it will be for the borrower to repay them without delay. The easier the EMI repayment, the higher the lender’s probability of receiving their due amount.
Opting for a longer tenure can ease EMI management without stressing the borrower’s budget, allowing them to borrow more by increasing their eligibility. So, while selecting a Home Loan tenure, use an EMI calculator to calculate the EMI amount for different loan terms. Finally, choose a loan term with EMIs you can easily afford to pay each month.
3. Take a Joint Home Loan
One of the best ways to improve loan eligibility is to apply for a Joint Home Loan with a spouse, parent, or son. For joint Home Loan applications, lenders consider both co-applicants’ income and credit ratings, substantially increasing their housing loan eligibility. A Home Loan eligibility calculator will help calculate the loan amount the co-applicants are eligible to borrow.
4. Pay Off Existing Loans to Reduce Financial Obligations
Housing loans are long-term loans with durations of up to 30 years. However, some loans, like Personal Loans, are for a shorter term. Home Loan borrowers should try to pay off such smaller-duration loans to increase their monthly disposable income and reduce their financial commitments. It will eventually increase Home Loan eligibility.
5. Find Additional Income Sources
Besides salary and regular income, those with additional income sources have higher Home Loan eligibility. So, the higher the monthly income, the better it is for loan eligibility. Borrowers should try to increase their income through rent, investments, and part-time business to increase their Home Loan eligibility. Lending institutions check the applicant’s monthly cash flows before approving their Home Loan and offering them a suitable loan amount.
Housing finance companies can sanction only a certain percentage of the property’s price as a Home Loan. They verify the eligible loan amount through various property and purchase documents. So, ensure that the property price and stamp duty are clearly mentioned in the loan agreement. Moreover, follow the tips mentioned in this article to improve loan eligibility and use a Home Loan eligibility calculator to plan the application adequately.
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