Loan eligibility plays a major role in determining the interest rate, loan amount, and other loan terms. If your eligibility is high, the interest rate will be more affordable, the loan amount will be high, and vice versa.
However, can you increase your loan eligibility quickly?
The answer is: Yes.
Read on to learn how you can increase your loan eligibility and get better terms.
Home Loan Eligibility
Home loan eligibility depends on many factors, including but not limited to the following:
- Credit Score
- Credit Utilisation Ratio
- Monthly Income
- Loan term
- Single or Joint
Since house loans are collateral-based loans, lenders evaluate the loan eligibility before approving such loans.
How to Improve Home Loan Eligibility
Here is what you must do to enhance your home loan eligibility:
Aspire For a High Credit Score
A good credit score is essential to increase your home loan eligibility. Timely loan repayments can push your credit score higher. Paying loan EMIs on time speaks volumes about your seriousness in clearing your debt, which boosts your credit score.
However, any delay in repayment affects the credit score.
While no lender specifies a good credit score, a score above 800 is considered decent. For instance, if your score is above 800, you can get house loans in the range of 7.99% and 8.49%.
However, if your score is below 650, the interest rate may increase to 9.45% – 10.95%.
Keep Your Credit Utilisation Ratio Within Limits
Credit Utilisation Ratio (CUR) depends on the amount of credit you have availed of against your monthly income. So, if your monthly income is INR 50,000 and you have loans with EMI worth INR 20,000, your CUR is 40%.
Generally, a CUR of 40% is considered the limit for house loan approval. So, considering the example above, if you are already spending INR 20,000 per month on loan EMI, lenders may feel reluctant to approve a new loan. Hence, keeping your CUR close to zero (0) improves your home loan eligibility significantly.
Apply When Young
Generally, house loans can be availed of by any Indian citizen aged between eighteen (18) and sixty (60) years. However, the closer your age is to 60 years, the less time you get to repay the loan. This can prompt your lender to increase the interest rate while decreasing the loan amount.
Conversely, if you apply at a younger age, you can get more years to repay the loan, prompting your lender to increase your eligibility to avail of low-rate house loans.
Check the Monthly Income Criteria
The borrower’s monthly income plays a major role in determining the home loan eligibility since it is directly linked to their repayment capability. The minimum income criteria vary from lender to lender. So, you must inquire about the same from the lender you choose.
Try to show your income from all sources and not only from salary or business. When you include the income from all sources, the net income increases considerably, enhancing your home loan eligibility.
Increase the Loan Term
While your eligibility influences the loan term, the loan term also affects the home loan eligibility. For instance, your lender may increase the interest rate if you choose a short tenure. This is because a short loan term increases the risk factor.
In contrast, if you choose long-term house loans, the EMI and the interest rate may reduce.
So, choosing the right loan term is crucial to increasing your loan eligibility.
Single or Joint?
If there is more than one earning member in your family, consider applying for joint house loans. Co-borrowing increases the home loan eligibility and reduces your liability to pay EMIs. Both applicants can apply for tax benefits.
Additionally, your eligibility may go even higher if the co-applicant possesses a high credit score.
Considering the eligibility is crucial before applying for house loans in India. Home loan eligibility depends on factors like credit score, age, loan term, CUR, etc. Keeping the abovementioned points can help you enhance your eligibility to secure a low-interest home loan approval.