In order for a bank to approve a home loan application, applicants must meet a series of eligibility requirements. If the qualifying requirements are satisfied, the borrower will be able to repay the loan and will not default. If an applicant fails to fulfil the eligibility requirements, not only will the bank reject their home loan application but it will also have a negative impact on the user’s credit history. Various banks charge different interest rates on their home loans according to qualifying requirements. The bank determines the interest rate on a home loan application depending on the applicant’s eligibility. The age, income, and credit score of the applicant are among various other factors that help in determining whether or not he is qualified for a home loan. Each bank has its own set of standards for qualifying. However, the main qualifying requirements are the same for all of the country’s major banks. When the lender or bank receives all of your information, it uses exact ratios to assess your eligibility. The three most significant ratios are as follows:
The Debt to Income Ratio
The Debt to income ratio is a measure of how much debt a person owes compared to how much money (Fixed)
The lender will consider all of your previous loans and how much you owe on them, as well as the house loan you’ve applied for.
Return on Investment (ROI) (ROI)
The ratio advises the bank how much of your income you should set aside for loan repayment if your monthly bills are nearly half of your income.
The Loan-to-Cost Ratio
This is the third factor to consider. This ratio compares the amount of money borrowed to the amount of money paid by the applicant. It’s a method of calculating the amount of equity you have in your property.
How to Improve your Home Loan Eligibility
The following are some steps you may take to improve your home loan eligibility.
- Make a working family member, such as your spouse, a co-applicant for the loan.
- Contact your lender to check if a structured repayment plan is available.
- Make sure you have a steady stream of income, as well as regular saves and investments.
- Provide details on your frequent alternative sources of income, such as rental income from a separate property, revenue from a firm other than your present one, and so on.
- Maintain a record of variable pay components such as bonuses, commissions, and overtime.
- Examine your CIBIL score and make any adjustments necessary to enhance or rectify any issues.
- Ensure that any outstanding debts and short-term commitments are paid in full.
These are some of the steps you may take to improve your chances of getting a house loan. Apart from that, remember that in order to get your house loan application approved, you must have a good credit score.
How to Improve your CIBIL Score
Improving your CIBIL score will help you improve your home loan eligibility in the long run. The following are some of the most prevalent techniques to raise your CIBIL score:
1. Personal Finance Habits
Making on-time credit card and loan EMI payments will help you improve your overall CIBIL score by enhancing your repayment history. If you miss a credit card or loan EMI payment, your CIBIL score will suffer. As a result, you should concentrate on improving your repayment habits if you want to improve your CIBIL score. It also aids in the improvement of your general repayment habits, helping you to become a more responsible credit borrower. It also makes it easier for future creditors to extend your credit. Apart from raising or maintaining your credit score, individuals with good payback practices are more likely to have their loan or credit card applications accepted.
2. Having an Old Account
The majority of people feel that cancelling old accounts would help them improve their credit score. This is a myth, and keeping an old account open will help you improve your CIBIL score. Credit agencies favour older accounts because they show a long-term relationship between the borrower and the lender or bank. This is also influenced by the sort of connection you have with your current bank. Maintaining an old account will be simple if you have a solid relationship with your current bank. Similarly, you’re more likely to have a favourable connection with a bank if you’ve held an account with them for a long period.
3. The Use of Credit
When banks calculate your CIBIL score, the credit utilisation ratio is an essential component to consider. Keeping your credit use rate below 30% of your credit limit can help you retain a high CIBIL score. Monthly credit card repayments are reduced as a result of utilising less credit, making it simpler to make timely payments and improving your CIBIL score. It is, however, critical that you have a large credit limit. Apart from having a greater credit limit, however, using less credit demonstrates that you don’t require a large amount of credit and will be able to pay on time.
4. Credit Types Mixture
A good credit combination might be achieved by combining secured and unsecured loans. Secured loans, on the other hand, are often long-term loans that can assist you in improving your CIBIL score. A house loan, on the other hand, has a lengthier payback term to demonstrate the borrower’s capacity to make timely payments. Credit bureaus analyse your consistent payment history when calculating your CIBIL score.
These are some of the suggestions on how to increase CIBIL Score. Your CIBIL score, on the other hand, will not increase overnight; therefore, if you want to enhance your CIBIL score, you must be patient. As a result, raising your CIBIL score will help you become more eligible for a house loan.