Given the high prices of residential real estate, buying a home is only possible for most by opting for a home loan. Getting a home loan is a process that involves qualification and eligibility. Only after these steps can one get a home loan and successfully to buy their dream home. In this blog, we will discuss the eligibility criteria laid out by financial institutions and tips for improving the chances of getting a home loan successfully.
Eligibility
Most financial institutions have laid out criteria for home loan eligibility. These are the same for most of the lenders except for a few clauses that might change. This is an important step of the home loan process as it lays the foundation.
We discuss these below:
1. Credit Score:
The credit score reveals the capacity of the borrower to repay the loan. A higher credit score is favourable as it gives the lender confidence in the borrower’s ability to repay. A score of 750 and above is a good score increasing the chances of getting the loan.
2. Income and Employment
Lenders look for borrowers with stable and sufficient income to repay the loan. A stable employment history is preferable as stability assures regular income and better career prospects.
3. Down Payment
All lenders expect a downpayment of 10 to 20 % of the property value. If the borrower can make a higher downpayment, they have the financial power to repay the loan which is considered to be a good sign by the lenders.
4. Debt-to-Income Ratio (DTI):
A lower DTI ratio indicates that you have a good balance between debt and income. Aim to keep your DTI ratio below 36%.
Tips for improving home loan eligibility:
1. Improve Credit Score
The best way to improve your credit score is to repay any outstanding loans and pending credit card bills. The credit card bill should be less than 30% of its limit. If possible one can opt for pre-approved eligibility by meeting all the criteria in advance.
2. Income and Financial Stability
The income of the borrower should sufficiently exceed the EMI payouts. In case your income is lower, try to generate additional income through other sources. This will reflect a healthy income statement increasing the chances of getting the loan.
3. Save For Higher Downpayment
A higher down payment will reduce the loan amount and build credibility with the lender at the same time. You can achieve this by creating a dedicated savings plan.
4. Co-applicant
If one can add a co-applicant with a good credit score, the chances for loan approval increase. Lenders prefer the co-applicant to be the spouse or a family member.
