Your Questions Answered: How do I increase my home loan eligibility?

In today’s dynamic and unpredictable economic landscape, practicing sound financial discipline is not just a prudent choice but a crucial necessity. Whether managing personal finances or steering the fiscal course of a business, the principles of financial discipline provide a sturdy framework for stability and growth.

This article explores the essential components of financial discipline, offering insights into effective budgeting, saving strategies, and prudent investment practices that empower individuals and organizations to navigate financial challenges with confidence and resilience.

Q. When should one consider home loan balance transfer?

A home loan balance transfer allows you to transfer your outstanding loan amount from one lender to another, restructuring terms such as interest rates and repayment options to better suit your financial needs. While opting for a home loan transfer, remember that you may incur charges such as processing fees, legal charges, and other applicable costs. Ensure that the benefits of transferring the loan outweigh these costs to make it a financially sound decision.

Balance transfers can be beneficial in several ways:

• Lower Interest Rates: Resulting in reduced EMI burden.
• Flexible Repayment Options: Allowing you to choose repayment plans that fit your needs.
• Top-up Loan Option: Enabling you to borrow additional funds for other purposes at a lower interest rate compared to personal loans or credit cards.
• Improved Customer Service: If dissatisfied with the customer service of your current lender, transferring your loan to a lender with better service can make managing your loan more convenient.

These points should be considered while choosing a new lender for the balance transfer.

Documents that are to be collected from your existing lender includes:

• Letter of Consent: A formal application informing about the home loan transfer and requesting a consent letter.
• No Objection Certificate (NOC): Stating that the existing lender has no issues with transferring your home loan to the new lender.
• Foreclosure Letter: Confirming that the home loan is foreclosed on a stated date with no outstanding balance, obtained once the new lender pays your outstanding loan amount to your existing lender.
• Property papers
• Pending post-dated cheques

It’s crucial to consider all these factors while choosing a new lender for the balance transfer.

Q. How to enhance home loan eligibility?

Lenders may limit the amount they can sanction based on your eligibility, but you can increase your eligibility in the following ways:

Apply for a Joint Loan: One of the effective ways to increase your home loan eligibility is to apply for a joint loan with an earning family member, such as your spouse, parent, or sibling. When you apply for a joint loan, the combined income of both the applicants is considered, which can help you get a higher loan. Additionally, both the applicants can individually receive tax benefits based on their respective share of loan payments if they are co-owners of the property.

Increase the Loan Duration: The EMI amount is directly related to the loan duration; a longer-term result in lower EMIs (Equated Monthly Instalment) and vice-versa. By opting for a loan with a longer duration, the EMIs become more affordable, allowing you to apply for a higher loan amount. However, the maximum loan term is determined by the lender based on factors such as your age, profession, and other considerations.

Improve Your Credit Score: A high credit score significantly improves home loan eligibility. Applicants with high credit scores can secure home loans at attractive interest rates. Therefore, improving your credit score can enhance your eligibility and make it easier to obtain a home loan.

Prepay Existing Loans: Lenders assess your repayment capacity to ensure that you can repay the new loan. They use parameters such as the Fixed Obligations to Income Ratio (FOIR), which helps them understand the percentage of monthly income needed to repay existing loans. Thus, paying off existing debts can improve your home loan eligibility.

When a lender approves a home loan, they assume a considerable risk. To mitigate this risk, lenders carefully assess the borrower’s profile based on the above parameters, and only eligible applicants receive loan sanctions.

Q. Why is a good CIBIL score required for home loan?

When you apply for a home loan, financial institutions (FIs) check your CIBIL score, a rating provided by the Credit Information Bureau (India) Ltd (CIBIL). This score, a three-digit number ranging from 300 to 900, is derived from detailed credit information gathered from banks, FIs, and other credit institutions. Based on this data, the bureau generates scores and reports for individuals.

Your CIBIL score is a summary of your credit history, factoring in elements such as past payments, settlements, defaults, write-offs, secured versus unsecured loans, credit card usage, and loan equities. The bureau updates the CIBIL score every 30-45 days as they receive new data from credit institutions. If there are any disputes with your bank or FI that affects your score, you can contact the bureau to have your information updated.

Most banks approve home loans for applicants with a minimum credit score of 700. If your score is below 650, you may find it challenging to secure a higher loan amount. Therefore, maintaining a score of at least 700 is crucial for obtaining a home loan at an attractive interest rate.

To boost your credit score in the long run, focus on timely loan repayments, keeping your credit utilisation ratio at 30% of your limit, maintaining a mix of secured and unsecured loans, clearing all existing debt, and reporting any discrepancies in your credit report.

Remember, maintaining a good CIBIL score can unlock better financial opportunities, especially when it comes to securing loans. Therefore, it’s essential to practise sound financial discipline.

Preeti Mishra, Head of Product, Digital Transformation, Business Development, Partnerships & Customer Service