Given the popularity of advances like home loans, borrowers often impose strict eligibility requirements to offset any chances of defaults.
In any application for a home loan, the first point a financial institution assesses for approval is an applicant’s ability to service EMIs within the agreed tenure. Complying with the home loan eligibility criteria, thus, is crucial in this regard. Such criteria largely include a borrower’s current income source, age, repayment capacity, credit score etc.
Here are some of the essential pointers to enhance one’s eligibility –
- Paying off existing loans
Individuals should make sure to clear all their previous debts, otherwise, it would have an adverse impact on their eligibility criteria. The lender would first check for outstanding dues to determine one’s existing financial burden. After the previous loans are fully repaid, collect no-due certificate and have CIBIL score updated.
- Restricting FOIR
Fixed Obligation to Income Ratio (FOIR) or debt-to-income ratio is one of the major parameters ascertained in determining home loan eligibility criteria. Such a ratio is indicative of the percentage of current income utilised to pay existing loans.
It means higher the FOIR, the corpus of income becomes lower to service any prospective loan, which negatively affects one’s eligibility criteria. It is recommended to restrict the FOIR at 40%. A lower debt-to-income ratio translates into limited liabilities, which, in turn, leads to the enhancement of disposal income. Lenders invariably take that as a higher capacity to repay a borrowed amount.
In case of low FOIR, either repaying all the previous debts or augmenting your source of income would be effective in bringing up the ratio to an acceptable level.
- Opt for longer loan tenure
Equated Monthly Instalments (EMIs) are the monthly payouts made by borrowers towards repaying a borrowed amount. This monthly outgo is spread across the term of loan. Therefore, if loan tenure is longer, say, up to 240 months for a home loan, the tranches of payment every month reduce accordingly.
It also renders the loan affordable to applicants with a modest income, making repayment easy. In such an instance, an individual’s eligibility for a home loan would also be considered to be higher.
One may use home loan eligibility calculator to learn if their FOIR is sufficient for swift credit approval.
- Robust credit report
Lenders place great importance on an applicant’s credit report to approve big-ticket advances such as a home loan. It is assessed to gauge the repayment behaviour and peg the individual as low or high-risk applicant and as such, is one of the main factors that can affect your home loan eligibility.
If the credit score is upward of 750, the home loan eligibility invariably increases. Furthermore, it may enable an applicant to negotiate with the lender for a reduced rate of interest.
- Availing a joint home loan
Opting for a joint home loan is an effective recourse if you are wondering “how to increase home loan eligibility?” in the backdrop of low credit score or insufficient income – some of the potent causes for rejection of loan application. The home loan eligibility is enhanced if a co-applicant is included. It is because a joint applicant’s income is also considered while examining one’s eligibility.
Moreover, there is also a favourable impact on your credit score when you apply for a joint home loan.
The co-applicant must necessarily be an immediate family member to avail a joint home loan, whether residing in the country or otherwise. With a woman co-applicant, there is an added advantage of availing a lower rate of interest.
Satisfying these criteria may also make an individual eligible to avail pre-approved offers extended by reputed financial institutions. Such offers are extended for various secured credit options like home loan, loan against property etc. to make their application process more streamlined. You can check your pre-approved offer by submitting a few essential details like name and contact number.
Apart from these factors of home loan eligibility, it is extremely important to disclose only the correct information during loan approval. If there is anything to the contrary, your home loan application is liable to rejection.