How to Improve Your Chances of Getting Approved for a Home Loan

When one is planning to buy or build a home, it takes a lot of planning and saving. However, even with proper strategies implemented, it can still be a challenge to realize your dream. This may be attributed to the rising property prices. As such, many people consider taking a home loan a smart move.

Improving eligibility

One thing you discover as you try to seek financing is that various financial institutions have criteria that should be met for one to qualify for a loan. This makes it a bit hard for borrowers to be approved for a home loan. Here are some ways you can improve your eligibility:

Maintain your CIBIL score

Your credit score determines how willing lenders may be to offer you a loan. A good score indicates a high level of creditworthiness. As such, the lenders use it to assess how likely you are to repay the loan. Maintaining a good score is paramount if you are planning to seek approval for a loan. Paying bills on time, meeting your monthly loan installments, and lowering credit use can have a positive impact on your CIBIL score.

Boost your income

Financial institution normally considers your income as they assess your loan eligibility level. With a higher income, it indicates that you have a much better repayment capacity. The lender, therefore, views you as a viable borrower.

Since your income status is checked and used to gauge whether you can repay the home loan, you should work on increasing it to help convince the lender of your ability to repay. This can be done by disclosing all other sources of income within the application. This could include rental income, part-time jobs, payouts, or any other investment you have.

You may also consider getting a better-paying job or looking for a side hustle such as a business to increase your income. It is important to note that your income can determine the home loan interest rate you receive.

Reduce debts

Before anyone extends a loan to you, they will assess the debt-to-income ratio related to you. The ratio weighs your debt compared to your earnings. A high ratio may be interpreted as a possible difficulty when it comes to loan repayment. Make sure you reduce your debt as much as possible by paying debts like credit card bills before applying for a home loan. In case you have any other loans like car or personal loans, ensure they are first cleared before you make an application. By clearing any current debts, you lower the DTI ratio, which makes you eligible and capable of getting the best deal.

Prepare for the down payment

Down payment refers to the money paid upfront as you purchase a house. If you can show a lender that you are capable of paying a sizeable down payment, they may feel more inclined to offer you a loan. A sizeable down payment translates to a lower loan requirement with a shorter tenure. This means a lower default risk. When you save up for the down payment, you are in a better position to get the loan you want.

Pick a long-tenure

Loan tenure refers to the time given for a loan to be repaid in full plus interest. This affects many aspects of the home loan. When you opt for a longer tenure, the EMI reduces significantly making you more eligible for a home loan. However, this may cause an increase in the total interest you are required to pay on the same amount. Therefore, you need to find out more about what the picked tenure implies and find out whether it is the best for your finances.

Choose a low loan-to-value ratio

LTV or loan to value refers to the total property value in percentage that can be borrowed as a home loan. When the LTV is low, the money you loan is lowered. This improves your loan eligibility even more.

A good employment record

Lenders are more willing to extend loans to those running a business or have been in employment for several years. When your employment record is stable, it reflects your capacity to make loan repayments over the set tenure.

Pay your financial obligations on time

If you want to improve your chances of getting faster approvals and attractive home loan interest rates, you should avoid making late payments. Settle your loan installments and credit card balances in good time to avoid a negative effect on your credit score. A poor score, as earlier mentioned, lowers your eligibility. Clear loans on time and settle payments as soon as they arise.

Bottom line

Getting a home loan approval and a favorable home loan interest rate can help you get closer to owning a home of your own without stretching your finances too much. Before making the application, pay attention to your credit score, boost your DTI ratio, choose a longer tenure, save for the down payment, and reduce your credit obligations. Getting the above-mentioned things right places you in a position to get better terms from your lender.