Purchasing a house is a vital decision requiring a planned investment. This factor affects both financial capability and family security. To settle the cost of a residence, individuals avail a home loan. The credit form offers substantial fund against a reasonable interest rate. Moreover, the documentation is relatively straightforward. However, there are certain times when the loan application is cancelled due to home loan eligibility mandated by lenders. This becomes a problem for borrowers who have already booked a property. However, there are specific ways to remove the chances of loan rejection. Some of them are discussed below.
Ways to improve the chances of home loan approval
- Co-applicant or guarantor
Typically, home loan lenders scrutinise factors like FOIR, income, credit score of an applicant as eligibility parameters. Failing to clear these criteria can lead to loan application cancellation. In this regard, opting for a guarantor or co-applicant can prove beneficial. Typically, women co-applicants with a 750+ credit score are given more priority. This removes the concern or risk factor from a lender’s end. Moreover, it enhances the overall eligibility to boost approval and higher chances of getting affordable home loan interest rates.
Furthermore, applying with a co-applicant double the tax benefits available on interest and outstanding balance of housing loan.
- Improve credit score
A borrower’s credit score is a vital factor assessed by lenders before approving the home loan. This factor substantiates an individual’s capability to repay a loan. LTV or loan-to-value ratio refers to the fraction of the property value sanctioned as a loan by a lending institution. This ratio is fixed based on the creditworthiness of a loan applicant. Since a home loan carries a higher risk from the lender’s end, factors like income, outstanding debts, etc., are strictly evaluated. Paying off the outstanding debt can be a way of improving the CIBIL score for improved eligibility.
- Show bonus revenue sources
Showing additional revenue sources to lenders can increase the chances of home loan eligibility. This can include surplus, increments, fixed deposits, rental income, mutual fund dividends, etc. Showcasing this additional income can enhance the eligibility criteria for a home loan.
- Longer tenor
Individuals facing loan approval issues can opt for a longer tenor. This ensures a lower home loan EMI outgo and timely repayment of an existing loan. This is a good way of increasing the credit score. However, opting for a long tenor increases the interest rate. Opting for part payments with the surplus funds can be a way of reducing the outstanding loan amounts. Using a home loan calculator would segregate the monthly payments and savings made.
- Reduce FOIR
Fixed Obligation to Income Ratio or FOIR is the evaluation of income after loan repayment. These monthly obligations can include credit card bills, SIP, insurance, EMIs, etc. Financial institutions prefer borrowers maintaining a 40%-50% FOIR mark. While the one with a higher FOIR remains at the risk of loan cancellation as most of their income goes into repayment. Opting for full, pre, or partial payment of the outstanding debt with a higher interest rate can bring down the FOIR. Individuals can also opt for loan consolidation to reduce the debt burden.
- Lower LTV ratio
LTV or loan-to-value ratio refers to the fraction of the property value sanctioned as a loan by a lending institution. This ratio is fixed based on the creditworthiness of a loan applicant. Individuals can boost their loan approval chances by opting for a lower LTV ratio as it suggests lower credit requirements, thereby reducing the loan approval chances.
These are some factors that can be practiced to improve the chances of home loan approval. Moreover, applicants must keep the documents handy for a streamlined loan application.