According to the RBI’s guidelines, from October 2019, interest rates on home loans are to be linked to an external benchmark rate such as the RBI’s repo rate. Since the repo rates have been slashed multiple times over the past year, this welcome change will enable lenders to extend home loans at low rates. Borrowers can thus save a substantial amount on interest outgo on home loans via such rate reduction. Hence, more individuals can avail a home loan now without worrying too much about the instalment burden.
As such, borrowers can also adopt the following ways to increase their home loan eligibility along with improving the chances of approval for a home loan.
Take measures to maintain a high credit score –
CIBIL score is a numerical representation of an individuals’ credit behaviour and repayment habits. It is a number between 300 and 900 assigned to individuals based on their overall credit report. Some of the ways in which one can improve and maintain his/her CIBIL score include –
- Keep credit utilisation to 30% of the overall credit limit.
- Opt for a healthy mix of both secured and unsecured credits
- Pay off all the debts in time
Even though the CIBIL score is not an essential requirement for home loans, borrowers should still try to maintain a healthy score as it opens up scope for negotiations with the lender for better service terms.
Check eligibility –
Borrowers must try to meet all the home loan eligibility parameters as specified by the lending institution before applying. It will significantly increase their chances of getting approved for a home loan. Some of the essential criteria that every applicant must meet are as follows –
- They should be residential citizens of India.
- Applicants must be within the age of 23 – 70 years.
- Salaried applicants must carry work experience of a minimum of three years, whereas self-employed individuals should own a business operating for five years or more.
Additionally, applicants can also use a home loan eligibility calculator to check the amount they are eligible for and apply for the same. It will enable them to get approved for a home loan quickly. Individuals need to enter the following details to calculate their home loan eligibility in just a few clicks –
- City of residence.
- Date of birth.
- Total monthly income.
- Preferred loan tenure.
- The total amount of monthly obligations.
- Additional income amount, if any.
Based on this information, the calculator will display the maximum amount an individual would be eligible for.
Furthermore, some lending institutions also provide pre-approved offers to borrowers, which help in speeding up the loan application procedure. Such offers can be availed on several financial products, like loans against property and home loans. One can quickly check the pre-approved offer by entering his/her name and contact information.
Provide all the necessary documents –
Applicants should also know the documents required for their home loan approval. Some of the essential documents that they need to submit are as follows –
- KYC documentation like voter ID card, pan card, Aadhaar etc.
- Property related documents such as occupancy certificate, possession certificate, or NOC from builder or housing society.
- A receipt containing details of payments made to the builder.
- A stamped agreement of sale or allotment letter.
Apart from that, applicants also need to provide some other documents to improve their home loan eligibility such as –
- Salaried applicant – Salary slips, Form 16, and bank account statement for the last six months.
- Self-employed applicant – Financial statements audited by a CA, proof of business’s existence, bank account statements, etc.
Apart from these documents, lenders may also ask for other relevant documents from a borrower.
Reduce your FOIR –
Fixed obligations to income ratio (FOIR) refers to the percentage of an individual’s total monthly income that goes towards servicing their fixed debts such as rent, loan EMIs, etc. A higher FOIR ratio indicates that an individual’s repayment capability is low, which increases their risk profile to a lender.
Accordingly, their chances of getting approved for a loan also reduce. Hence, to improve home loan eligibility, prospective applicants should try to reduce their FOIR as much as possible.
Add a co-applicant
Applying for a home loan with another applicant who has a positive repayment history and a stable source of income will also help in improving an individual’s home loan eligibility. In this case, both applicants are responsible for paying the EMI amount every month, which reduces the risk involved for the lender. It also helps in improving one’s home loan approval chances.
However, before applying for a home loan, borrowers should consider all aspects, such as associated fees, which can increase the cost of the loan. They should also go through the terms and conditions specified by the lender to avoid any complications later.