Buying a house is one of the most important financial decisions. Home loan eligibility plays a huge role in helping you know how much you can borrow to buy your dream home. Strategically tweaking these factors, you can easily boost your chances of getting an increase in your eligibility.
Given below are some of the best tips to help you increase your home loan eligibility, bringing you closer to the ownership of your dream home.
1. Choose an Extended Home Loan Tenure
A longer tenure will increase your loan eligibility because it reduces the monthly EMI burden. The lenders assess your repayment capacity by calculating your DTI ratio, and a lower EMI ensures a better DTI ratio.
For instance, if you choose a 20-year tenure instead of a 10-year tenure, your EMI will be much lower for the same loan amount. That way, you will qualify for a higher loan amount. However, you need to consider the increased interest cost over the extended period and weigh the pros and cons accordingly.
| Loan Amount | Tenure | Interest Rate | EMI |
|---|---|---|---|
| ₹50,00,000 | 10 years | 8.5% | ₹61,880 |
| ₹50,00,000 | 20 years | 8.5% | ₹43,391 |
2. Make an Effort to Cast Down a Higher Down Payment
A higher down payment reduces the amount you need to borrow, thereby increasing your loan eligibility. Lenders perceive borrowers who make larger down payments as low-risk, improving the chances of approval.
For example, if the property is priced at ₹60 lakh, you can make a down payment of ₹20 lakh instead of ₹10 lakh, which reduces your loan requirement to ₹40 lakh. Not only does this improve your eligibility, but it may also help you get a better interest rate. Try to save more for the down payment to improve your loan prospects.
3. Pay-Off All Outstanding Debts & Loans
Clearing existing loans and credit card debts significantly enhances your loan eligibility. The lenders evaluate your application considering your existing financial obligations. A higher debt burden reduces your repayment capacity and lowers eligibility.
Start by:
- Paying off personal loans or car loans.
- Clearing credit card balances.
- Avoiding new loans until your home loan is approved.
Your DTI ratio improves by reducing your financial liabilities, giving the lenders confidence in your repayment capacity.
4. Consider Opting for Joint Home Loans
A joint home loan with a spouse, parent, or sibling increases the loan eligibility manifold. All applicants’ combined incomes are taken into account, thereby increasing the total loan amount sanctioned.
For instance, if your individual income qualifies for a loan of ₹50 lakh, combining it with a co-applicant’s income can raise the loan eligibility to ₹80 lakh or more. Also, some lenders offer better interest rates for joint loans, especially if one of the applicants is a woman.
Benefits of Joint Home Loans:
- Higher loan eligibility.
- Tax benefits for both applicants.
- Shared repayment responsibility.
5. Make Sure That Your Credit Score Has Improved
A good credit score is an important factor in determining eligibility for a home loan. Scores above 750 are considered excellent by lenders and improve your chances of getting approved.
How to Improve Your Credit Score:
- Pay all EMIs and credit card bills on time.
- Avoid maxing out your credit cards.
- Check your credit report for errors and rectify them.
- Limit the number of credit inquiries.
Improving your credit score takes time, so start monitoring and enhancing it well before applying for a home loan.
6. Proclaim Any Additional Income Sources
Declare all sources of income, such as bonuses, rental income, or freelance earnings. This will make your home loan application stronger. Lenders consider your overall income, and additional income sources improve your repayment capacity.
Examples of Additional Income:
- Income from investments such as fixed deposits or mutual funds.
- Earnings from part-time jobs or consulting.
- Rental income from properties you own.
Document these income sources properly with proof to convince lenders of your financial stability.
7. Avoid Frequent Job Switches
A stable employment history is the prerequisite for a home loan. Frequently changing jobs or gaps in employment raise red flags for lenders as they would rather lend to a steady income earner.
Tips to Maintain Stability:
- Stay with your current employer for at least 2-3 years before applying.
- Avoid changing jobs during the loan approval process.
- If you recently switched jobs, ensure it’s in the same field to demonstrate consistency.
Lenders like stability because it depicts reliability and diminishes the perceived risk of lending.
Following these strategies, you are likely to achieve a much better home loan eligibility and the funds to buy your dream house. But then remember thorough preparation and financial discipline play a key role in making the process smoother.
