In my previous blog, I mentioned how loan eligibility is calculated and what are the factors which are looked into before a bank decides to sanction a loan to you. You may need a higher loan than the bank is willing to provide, so how your loan can be enhanced.
So, you understood how the loan eligibility is calculated and some factors which impact it, so now let us see some of the ways how to increase home loan eligibility.
When you take a loan with someone else who is also working, like a spouse or a sibling as additional applicants, then you automatically enhance your loan eligibility after the documents of additional applicants are also submitted. Another big advantage is that the second applicant is also eligible for the home loan tax benefits but only if this person is also registered as a co-owner of the property. Also, if the first applicant has bad credit, then it can be offset to some extent if the second applicant has a better credit report. To know why credit reports are necessary, please ready my previous blogs.
The joint loan however has some negatives too as your credit report will also get affected if the second applicant is now able to pay his/her share of the EMI. Also, the second applicant will become the owner of the house, whether or not the person has paid any share of the EMIs. It can be a complicated situation if the co-borrowers are married and undergo a diverse either during the time the loan is getting paid or even later.
Just that the loan would then have a lower EMI if you take it for a long duration. The bank may then consider sanctioning the loan since the EMI would be of a lower amount and they could be more confident that the loan would get serviced.
If you pay off all your existing loans, especially those where interest rates are much higher, the loan eligibility goes up automatically, as then the banks would need to deduct these EMIs from your loan eligibility amount, as previously mentioned. Lenders check for a parameter known as the fixed obligation to income ratio (FOIR), also known as debt to income ratio. You could get your FOIR low, by paying off other loan liabilities if the outstanding is very low. This would increase your chances of getting the loan and also it could be a higher loan amount.
As mentioned in previous blogs, whenever someone applies for a loan, the credit report is checked from agencies like CIBIL. Download your report and check if it is all fine. The higher the score, the better is the chance of getting a loan. A low Credit Utilization ratio in the report will work in your favour.
A step-up loan is when the EMI as the loan progresses, to account for a higher income of the borrower in the future. Generally offered to younger borrowers so that when they are young, their income could below, which could increase over a while. Check if the bank offers the same as then they could provide a higher loan.
If you have been considering a change in job which would get you higher income, then you may want to defer the loan application till that time. However, please do keep in mind that if you are less than six months in a company, some banks may view that negatively. Similarly, while submitting your application, you can inform the bank if there is additional income like a bonus, perks, rental income, or any other income which increases your total income. If needed, it can be supported with proofs like bank statements and Income Tax Reports.
It is imperative that before applying for a home loan, the home loan eligibility criteria should be checked so that you could take appropriate actions if you need to enhance your loan eligibility. Hope this blog has given you some perspective on what should be looked at when you apply fora home loan in the future.
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