The risk assessment of the applicant’s profile is the first step a lender takes when you apply for a home loan with a bank or NBFC. A lender can determine a loan applicant’s ability to repay their loan based on several factors. These criteria are used to determine the bank’s home loan interest rates and the loan amount. Banks use a borrower’s employment status, previous debts, income, credit score, and other factors to decide whether to approve or reject their application for a home loan.
This blog will discuss essential elements that will raise your home loan eligibility while applying for a loan.
Tips to Increase Home Loan Eligibility
Applying for a home loan does not guarantee approval because loan applications are evaluated based on various factors. Knowing the factors contributing to improving home loan eligibility is essential before you begin the loan application process. The following are fundamental methods for improving your home loan eligibility and obtaining lower interest rates.
Take a Joint Loan:
Your chances of getting a home loan go up if you add a co-applicant to your application. You can get a bigger loan if you have a family member who works and has a great credit score. The applicant’s income is integral to determining if they are eligible for a home loan. If two people in the family who work apply for the loan, your ability to pay it back increases, and the loan amount can also go up.
Pay off your debts:
When determining your home loan eligibility, lenders consider your debt-to-income ratio. The percentage of your income used to pay off existing debts, such as a car or personal loan, is known as your debt-to-income ratio. Your eligibility for a mortgage loan is increased when you pay off existing debt. Your credit score benefits when you pay your credit card bills on time. Your chances of getting a loan increase if you have a solid repayment history. When applying for a home loan, the likelihood of having the loan approved is significantly higher if you are debt-free.
Check your credit score:
Banks and NBFCs consider a loan applicant’s creditworthiness one of the most critical factors. A good credit score reflects your repayment ability and can help you qualify for a home loan. When applying for a loan, keep an eye on your credit score. Assume you have a credit score of at least 750. In that case, the likelihood of receiving a home loan approval and lower interest rates from the lender is high. A lower credit score may cause a lender to reject a loan application. Before applying for a loan, take steps to improve your credit score.
Opt for longer tenure:
Up to 25 years can be used to pay off a home loan. The home loan EMI goes down the longer the loan lasts. The risk for the lender goes down as the EMI goes down. Lenders prefer loans with longer terms during the risk assessment process because they carry less risk. As the EMI amount to be paid decreases, the lender’s risk decreases. Another benefit of longer-term loans is that people with lower incomes can get a home loan because the home loan EMI is lower.
Declare additional income source
Declaring any additional sources of income improves your ability to obtain a home loan. Anything from dividends from mutual funds to rental property income can be considered additional income. An additional income source is anything that comes in on top of your regular income. A lender’s confidence is increased by the borrower’s ability to repay the loan if they can demonstrate additional income sources.
Conclusion
People who want to own their own home can now get a home loan that is easier to get and costs less. Technology and easy access to the internet has made it easier and faster to evaluate loan applications and give them the green light. But before you apply for a home loan, you need to know the factors lenders use to determine if a borrower will be able to pay back the loan.