Home loans are taken to buy your dream home. You need money to buy the land and construct the house on it if that is what you are looking for. You may also need a loan to buy a flat from a builder in case that is the direction in which you are going. Sometimes you need a loan to renovate your existing house, to repair it or simply to extend the house.
It’s not a big challenge to take a loan for building or buying your home provided you meet the criteria for getting the loan. First of all, you’ve got to determine the loan amount that you are eligible for. The eligibility criteria of yours shall be checked by the banks or other lenders. Your eligibility will mostly depend on your capacity to repay the loan. The ability to repay the loan is determined by your monthly income, surplus amount with you every month, and also the income of your spouse. Your assets and liabilities are also important points to ponder over. The stability of your income is also verified by the lenders.
Other key aspects impacting eligibility
Another important yardstick happens to be the time horizon. The bank has to be assured that you will be able to repay the loan within a particular timeline. The time horizon has to be determined before the loan is sanctioned. There is another criterion you have to meet and that is your upper age limit. The upper age limit can affect your eligibility for a loan.
How much loan you are eligible for should be known before applying. Your eligibility depends on your capacity to repay the loan taken. There must be some basis on which your repayment capacity is founded. The repayment capacity depends on your monthly income which is surplus or disposable. The surplus income is calculated by deducting your monthly expenses from income. There are other factors such as the income of your spouse, your assets, and liabilities and how stable your income is.
The maximum amount you can borrow should also be known because it will decide your future acquisition of property. Generally, the down payment is 20% of the purchase price. This amount is what you have to pay for the property. The remaining 80% of the value of the home is financed by the bank or lender. The total loan amount includes charges for registration, stamp duty, etc.
It would be very thoughtful of you to know for sure what your home loan eligibility is. There are several ways to increase loan eligibility as well.
Increasing home loan eligibility- Some vital tips
You should get rid of your existing loans. Before applying for a loan for the house, you should clear your existing loans as much as possible. If you have been repaying loans that you had taken in the past, it might affect your eligibility for a new loan. The lenders measure your debt-income ratio. The debt-income ratio is an assessment made by the lender which is the percentage of your monthly income spent on paying your monthly debts such as EMIs, personal loan, etc compared to your income.
Your goal should be to improve your debt-income ratio by closing all existing loans through prepayment. Your CIBIL score should be assessed by you and you should improve this score by paying your loans on time and not creating undue debts. Improving your CIBIL score is of paramount importance. You must be regular with your credit card payments and at the same time, your old loan records should depict a clean repayment history without any defaults.
There are some other means of displaying a sound credit score. You should pay your EMIs on time and credit cards payments should not miss the due date. There is one trick you should always keep in mind. It is better if you can keep a low credit utilization ratio that is, you should be much below your spending limit. You shouldn’t let one very important fact slip your mind that defaults in loan settlements should be avoided. These are responsible for a poor credit score. Moreover, you should avoid a lot of credit at one go. It will lower your credit score.
Some other factors to keep in mind
A healthy credit history promises better creditworthiness to the lender. A credit line without defaults reflects positively on your usage of credit card and credit history. If you find anything suspicious in your credit score, you should cross-check it to know the veracity of the fact.
Here are a few other ways to increase your eligibility:
Taking a loan jointly: It is a good idea to apply for a joint loan in order to enhance the possibility of getting the same smoothly. You can go for a joint loan with a spouse or any other member of your family or a co-applicant. This enhances your eligibility for getting a home loan.
If your spouse is a co-applicant, it’s a great idea because eventually, the shared repayment burden will result in income tax benefits for both of you. So, both of you can also share the tax benefit.
Step-up home loan: When you are reaching the age of retirement, that is you are on the wrong side of the 50s, it is difficult to get a substantial loan at this stage. If your age is hovering around the 30s and 40s, you can get a higher loan sanctioned. The problem of repayment at this young age might be a challenge because of lower-income. In this scenario, you should go for a step-up home loan in which EMIs are lower initially and increase in future years. This facility is provided with an expectation of an increase in income in future.
A step-up home loan helps in pushing up your eligibility of getting the loan by a few notches higher. The EMI remains lower during the first few years and it increases gradually in a step-up manner with the increase in income. This way your eligibility gets an upward mobility of sorts. Opting for a longer loan tenure can also help enhance your eligibility for a loan, but on the flip side you will end up paying more interest if you go on repaying the loan for a longer period of time. This option can be chosen if you seem to exhaust other choices.
A supplementary source of income: If you happen to earn some additional income, for instance, rental income from another property of yours, you will be entitled to better loan eligibility. It is advisable that you rent out a second property if you have one. It will give you regular cash flow. It will reflect positively on your portfolio as well.