A home loan can help you buy a plot, or an under-construction or already-built property. You can also apply for a home loan for renovation, extension, or repair of your own house. A home loan comes at a low-interest rate as compared to other types of loan and also provides tax benefits to the borrower. However, banks only approve home loans for applicants that meet the eligibility criteria and have the repayment capacity to pay the instalments of the home loan. You can check the home loan eligibility calculator of a bank to make sure that you fit the bill.
If you want to improve your chances of getting a home loan from a bank, there are certain ways in which you can become a more suitable candidate. The 7 steps to improve your home loan eligibility are listed here:
- Clear off Debt: One of the first things that a lender, bank or other financial institution, will check when they go through a credit card application is the amount of debt that the applicant has accumulated. If you have availed a number of loans such as education loan, personal loan, credit card debt, etc., the bank is less likely to approve a home loan for you. In their opinion, you have too many financial obligations that you are tied to already to be able to afford another loan such as a home loan. Consolidating the loans also help save on interest. Use a loan eligibility calculator to look at the interest outgo for all your debts and then look the same for the single loan. You can also use a home loan eligibility calculator with custom numbers that will show you clearly that you save when you opt for a single loan.
- Improve Your Credit Score: Your credit score says a lot of things about how you handle money and if you have the ability to repay the home loan that you are applying for. Frequent defaulters on loan repayments or credit card bill payments have a low credit score and are considered as high-risk candidates. The banks do not approve home loans, or any type of loans, for such applicants. If you also have a low credit score, you need to improve your credit score before you apply for a home loan. One of the best ways to drastically improve your credit score is by paying off as many loans as you can. As mentioned in the earlier paragraph, you can also consider consolidating all of your loans into one by paying off all loans with the help of a single loan. Also, pay off high interest debt first such as the credit card outstanding balance as soon as possible.
- Apply for a Longer Loan Tenure: A long tenure for a loan usually comes with a lower interest rate as well as a lower monthly instalment. This simply means that the borrower can easily repay the loan in small instalments every month. It will not create an imbalance in the monthly budget and will also reduce the chances of defaults of loan repayment. You can go to the bank’s website and locate the home loan eligibility calculator to check the specific eligibility criteria of the bank.
- Add a Co-applicant: Individuals can apply for a home loan for an amount that depends on their income and current financial condition. To improve their eligibility and also get a home loan of a higher amount, an individual can have a co-applicant, either a spouse or a family member. If the monthly income and credit score of the co-applicant are good, it can improve the likelihood of both getting a home loan.
- Provide a Guarantor: Banks like to approve home loans for individuals that can provide security or guarantor for a loan. It is favourable for the bank since the bank can forfeit the security or seek the guarantor in the case the borrower fails to repay the loan for any reason. A guarantor adds credibility to the borrower in the eyes of the lender improving the chances of getting approval for a home loan.
- Purchase from a Reputed Builder in a Good Area: Most of the banks approve home loans of borrowers purchasing a property from a reputed builder. Home loans are also provided for renovation, extension, and repair of a loan as well and the bank is more likely to approve a home loan in such a case if you own the property in a good area. The banks do not approve home loans for properties in certain areas and it is best to avoid them.
- Have a Stable Income: A stable monthly income is one of the most important factors that determine the loan amount a bank will approve for an applicant. If an applicant has low monthly income, he may not be in a condition to repay the loan he is applying for. The banks may approve the home loan if the borrower has the financial assets to repay the loan. However, a strong and regular source of income is desirable.
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