For many, owning a home is a dream. The key to turning this dream into a reality is a home loan.
However, qualifying for a home loan is easier said than done, especially in today’s economic climate. When assessing eligibility, lenders consider several factors. As a rule of thumb, the stronger your loan application, the more chances you have of having your loan quickly processed and reaching a step closer to achieving your homeownership dreams.
Before applying for a home loan, check the exact home loan amount that you are eligible for and take back the charge of your finances. If the home loan amount you qualify for does not meet your property’s value or you find out that you have fallen short in eligibility, the tips below might help.
Look at the eight actionable steps you can implement to improve your home loan eligibility without further ado.
Eight actionable steps for improving home loan eligibility
- Build & maintain a good credit score
A credit score is a significant factor in determining home loan eligibility. Lenders use it to analyze a borrower’s ability to repay a debt. Typically, a higher score means higher borrowing limits and better loan terms.
Therefore, building and maintaining a good credit score is essential if you plan to apply for a home loan.
Regularly review your credit report for discrepancies or errors. If you find any, promptly address them. To perk up your credit score, pay off outstanding debts, make timely payments on all your bills, maintain low credit card balances, and keep your credit utilization ratio low.
If required, do not hesitate to consult an expert financial advisor.
- Reduce your existing debts
When analyzing your home loan eligibility, lenders will look at your DTI (debt-to-income) ratio. This ratio weighs the amount of debt you currently have against your income.
If your DTI ratio is high, it indicates you may struggle to repay the home loan.
Lenders prefer borrowers who have a manageable debt-to-income ratio. So, it is crucial to decrease your debt by paying off personal loans, credit card bills, and other debts before applying for a home loan.
- Boost your income
Lenders look at the borrower’s income to ensure they can handle the additional financial burden of a home loan. A higher income automatically indicates your ability to repay the loan and improves your eligibility.
If you plan to apply for a home loan, seek additional income sources. Consider freelancing, part-time jobs or other side gigs to boost your income. You could even consider switching your career to a higher-paying one or asking your employer to give you the promised promotion.
In your loan application, don’t forget to include any extra bonuses or earnings to showcase your financial stability.
- Save for a larger down payment
A larger down payment demonstrates to lenders you have a considerable financial stake in the property. This reduces the amount you need to borrow and translates to a lower loan amount, a stronger loan application, and a lower interest rate.
It is recommended to start saving for a larger down payment from the day you dream of owning a house or the first day you start earning a steady income. Create a budget and track your expenses. Identify the areas where you can cut back on unnecessary spending and allocate those funds towards your down payment savings. Review your budget frequently to reduce your expenses whenever possible.
- Maintain a stable employment history
Lenders prefer borrowers who have been running a business or have been employed for a certain number of years. This Indicates to the lenders you are less likely to default on your loan.
Avoid switching jobs frequently, especially during the home loan application process.
- Choose a longer loan tenure
There is a rise in home loan eligibility when borrowers increase the loan tenure because this influences all other aspects of the home loan.
Choosing a longer loan tenure means the EMI will be lower, which improves eligibility.
However, please keep in mind that a longer loan tenure increases the total interest paid on the loan amount. Hence, carefully ascertain your finances before deciding.
- Consider a joint loan application
If your individual income is not sufficient to qualify for the desired loan amount, think of applying for a joint loan with your spouse, or close relative with a strong credit score and stable income. This is one of the widely used ways to increase the chances of getting a loan and qualifying for a higher loan amount.
Lenders will consider the income of your co-applicant alongside yours, and this will increase your eligibility.
- Have a FOIR below 40%
The FOIR (fixed obligation to income ratio) is a crucial parameter that almost all lenders consider when calculating the borrower’s home loan eligibility. Moist banks or financial institutions require you to have 40-50% of your monthly income devoted to living expenses.
So, if your house expenses match this requirement, your home loan eligibility will significantly improve.
Additional tips to keep in mind
- Consider step-up loans – Step-up loans are a better option for borrowers with lesser net monthly income or those who struggle to repay high loan EMIs because of monthly expenses. Under step-up loans, lenders offer loans to borrowers at lower EMIs in the initial years and then gradually increase the amount so that the borrower is in a financially stronger position to repay the outstanding loan amount in the later years.
- Be patient – Do not hurry or panic when applying for a home loan. Calculate your income or earnings, estimate your budget, check your credit score, compare lenders and loan options, and do all other required research before applying for a home loan.
Final thoughts
Improving your home loan eligibility involves a combination of financial discipline, strategic planning, and proactive steps. By enhancing your credit score, managing your debts, and optimizing your financial situation, you can boost your chances of acquiring a favorable home loan. Remember, the key is to maintain financial stability and present yourself as a reliable borrower to lenders.
By following these steps, you can better position yourself for a successful home loan application, making the process smoother and potentially securing more favorable terms.
