A home loan not only helps in financing the dream property of an individual, but it is also effective as a tax-saving financing option. However, when availing a home loan, borrowers need to fulfil several eligibility requirements. Also, high-value financing creates a considerable financial obligation on the borrower, which makes it essential to plan ahead.
Approval of a home loan is dependent on multiple factors such as credit score, repayment history and capacity, property value, and many more. It becomes important to enhance your home loan eligibility before availing the advance to improve your chances of hassle-free approval.
Tips to increase eligibility for a home loan
Even though there are quite a few ways to increase your eligibility for a home loan, the primary means are highlighted below.
- Take measures for credit score improvement
Although not a crucial requirement, a high credit score can accompany other home loan eligibility criteria and enhance an individual’s chances of easy approval. Taking measures like paying credit card dues and other loan obligations in time, availing a balanced mix of credit, etc. leads to an improved credit score over time.
Any existing loan EMIs and dues should be paid in time and in full. The credit utilisation ratio should also be kept at not more than 30%. Individuals should also avoid defaulting on any repayment. Gaining a comprehensive understanding of how credit score determines home loan EMIs should help individuals rectify any existing dent in their credit profile.
- Repay existing advances
It is also suggested to repay existing loans before availing the home loan as it impacts borrowers’ eligibility for the latter. An applicant’s home loan eligibility is assessed based on the debt-to-income ratio, which refers to the percentage of monthly income utilised for the payment of monthly debt obligations. A lower ratio indicates a high repayment capacity.
The debt-to-income ratio can thus be improved by repaying an existing loan before proceeding with a home loan application.
- Opt for a joint loan
Applying for a joint loan comes with a higher chance of approval of home loan as it combines the eligibility of two individuals. Applying with a co-borrower carrying a reliable credit profile bolsters one’s chances of receiving approval. One of the most commonly used ways these days is to opt for the spouse as a co-applicant. It effectively increases eligibility for a home loan, and in certain cases, lenders may also provide the borrower with additional benefits like interest rate reduction.
Spouses are considered to the ideal co-applicants, and hence, one can consider owning a property with a spouse. Also, the complexities in repayment are relatively less as opposed to opting for a sibling, child or parent as a co-borrower. Further, if a home loan is co-borrowed with spouse and the repayment burden is equitably divided among the two, tax benefits can be availed by both under the Income Tax Act, 1961.
- Provide an additional source of income
An additional source of income automatically increases one’s home loan eligibility as it projects an increased repayment capacity. For instance, if an applicant has a second home, it may be let out, which in turn, will generate a monthly rent over and above the regular income. It ultimately projects an improved repayment capacity, allowing individuals to access high-value loans with ease.
- Choose an extended tenure for repayment
When a borrower opts for an extended tenure for repayment, it provides him/her sufficient duration for timely payment. Also, the lender’s risk is considerably reduced. Hence, a longer home loan repayment tenure increases the eligibility of the borrower. Using a home loan eligibility calculator can help make a suitable tenure decision as per one’s loan eligibility.
Alongside, selecting a suitable financier is equally important. Lenders providing ease of loan access via streamlined application processing can help avail financing with ease.
For instance, some lenders extend pre-approved offers to customers, which make the process of availing loan quick and hassle-free. Such offers are available for various financial products, including home loans and loans against property. Borrowers can check their pre-approved offer online by providing only their name and contact number.
Alongside, make sure to keep the required documents handy when proceeding to apply. Making a higher down payment can further work in the borrower’s favour, and help him/her gain access to the required loan amount.