A home loan like any other loan is an amount of money borrowed exclusively for the purpose of buying, constructing, renovating or extending a house from banks or financial institutions. Owning your own house gives a sense of security and everyone looks forward to it.
In order to get a home loan, you need to be eligible for the same. The lending firm checks the eligibility of the borrower. This will depend on a number of factors like your monthly income, past loan history, Fixed Obligations to Income Ratio (FOIR) etc.
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This article focuses on 5 ways to improve your home loan eligibility and these are:
A joint home loan means you decide to take up the loan with a partner. The partner could be your child, siblings, parents or spouse. Up to six co-applicants can be there. The advantage of a joint loan is that you will be eligible for a higher amount as the bank considers the monthly income of all the partners. If they share ownership of property as well, then they can enjoy tax reductions as well. Also, there is no specific rule on how much each borrower should pay, which means there is the flexibility of payment. This, in turn, helps to distribute the debt burden that would otherwise fall on a single person. A joint home loan also helps to overcome an increased FOIR ratio or lower credit score.
See Also: How to Switch to Repo-Linked Home Loan?
A credit score is the measure of a person’s creditworthiness. It is a three-digit number that is calculated based on past credit history. It indicates your eligibility to repay a debt. This is often used by banks and financial institutions to test your eligibility for a home loan. Higher your score, better it is. In order to gain a high credit score, you need to consider the following:
A credit score of 700 or more will increase your home loan eligibility. More than 750 is an indication of a great credit score.
A down payment is an initial payment the borrower makes to avail of a loan or credit. This affects the entire life of a loan. Higher the down payment, lower is your dependency on the borrowed amount, and hence the interest rates differ. This is because when you pay a large amount as down payment it reduces the lender’s risk. This also has the added advantage of lowering your monthly installments. This, in turn, enhances your future eligibility for borrowing. A higher down payment is a sign that you are financially capable of paying back the loan and this improves your eligibility for getting a home loan.
A loan can be repaid over a period of 5 years, 15 years, 20 years or even more. Here, the tenure (fixed time period) differs and so does the interest rate as well as monthly EMIs. It is the borrower’s call to choose the loan tenure. It is a common scenario that people often go for loans with a short tenure as they want to get out of the debt web as quickly as possible. However, they forget to compare the advantages of long tenure over short tenure. Longer the loan tenure, lower will be the monthly payments. This means even if you have a low monthly income you will be eligible for a home loan. This makes the home loan available to youngsters who are at the beginning of their career but would want to own a house. This also reduces the monthly installment amount.
The acronym FOIR indicates Fixed Obligations to Income Ratio. Fixed obligations are nothing but debt. So this is also referred to as debt-to-income ratio. It is eligibility criterion banks and financial institutions often use. It will take into consideration your monthly income and compare it with your monthly installments on various loans or products along with the new loan to be considered. The idle FOIR ratio should span between the ranges of 40% to 50%. For eg: if a person spends more than half of his income to pay off an existing loan every month, then he won’t be considered eligible for a home loan. So paying off debts and decreasing your FOIR ratio will increase your home loan eligibility. This is based on the idea that 50% of your income will be required for your living expenses. And only the remaining 50% can be considered to pay off the debts.
If the above-mentioned points are considered, it will certainly boost your eligibility to acquire a home loan.
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