Involvement of big-ticket loan amounts and long tenures in home loan need long term financial commitment from your end. Requirement of making margin contribution or down payment also needs considerable initial investment by you. Additionally, lenders also factor in your credit score and repayment capacity to assess your credibility. Thus, chances of availing the approval for home loan is dependent upon your current financial standing.
Check out 3 important question you should ask yourself to understand your home loan eligibility chances:
- Do you have sufficient corpus for making your home loan down payment?
RBI permits lenders to fund up to 75 to 90 percent of your property’s value through home loan. Rest of the amount needs to be met through your own pocket in the form of down payment. The ratio of loan amount and applicant’s own contribution is known as LTV ratio. While you may prefer opting for a higher LTV ratio, choosing a lower LTV ratio comes with its own set of benefits. Selecting a lower LTV ratio leads to lower loan amount, which results in lower interest cost for you. As lower LTV ratio lowers the lender’s credit risk, choosing lower LTV increases your home loan approval chances also at lower rates. However, choosing to make a higher down payment at the cost of your investments and emergency fund should be avoided. Doing this might make you avail loans at a higher cost to attain your important goals or to meet your financial shortfalls.
- Do you hold a strong credit score of 750 and above?
Lenders prefer credit score of 750 and more. Thus, if you hold a higher score, this means you have higher home loan approval chances. In addition, many lenders provide a preferential home loan interest rate if you have a good score. Thus, if you are planning to apply for home loan, consider maintaining a score of 750 and above. You can do so by reviewing your credit reports periodically before home loan application. This will permit you to have sufficient time to take the required steps to ameliorate and build your credit score before final application submission. Adopting healthy financial habits like paying timely credit card bills and existing EMI repayments by due date, avoiding multiple credit applications within a short time-period etc., can result in a good score.
- Do you have sufficient repayment capacity?
Lenders generally prefer lending you if your monthly loan repayment obligation involving your expected home loan EMI is under the 60 percent limit of your monthly income. In case you exceed this limit, you must consider prepaying or foreclosing your existing debt obligations to reduce your EMI outgo. If you find it difficult to do so, you should lower your EMI for home loan, which thereby would lower your monthly loan obligation by choosing a higher home loan repayment tenure.
From housing loan interest rate to eligibility criteria, there are several parameters you need to understand and ask yourself to determine your preparedness for home loan. Once you are convinced of having a high home loan eligibility chance, choose an appropriate lender. After this, consider using home loan EMI calculator to decide on the optimal EMI as per your repayment capacity to avoid burdening your finances. Keep your documents required for home loan handy while making the online submission for loan with the preferred lender to avoid any last-minute hassle.