Amid the global economic turmoil, real estate has become a buyer’s market. There is pent up demand due to unforeseen challenges, residential property prices dipping marginally, and financial incentives by the government in the affordable housing sector. 

• As per a TransUnion CIBIL report for Q4 2020, home loan inquiries witnessed a 9.1% year-on-year growth in November 2020.
• That said, the approval rate dipped y-o-y to 17.5% of total inquiries in August. 

These figures indicate that while there is an increasing demand for new home purchases, the home loan eligibility criteria are enforced strictly. In such situations, a wise move will be to research the factors that affect housing loan eligibility and look for ways to improve upon them.

How to increase home loan eligibility?

Below is a list of the top factors that lenders consider before extending a home loan and how to increase them.

• Decrease FOIR or DTI

An individual’s fixed obligations to income ratio (FOIR) and debt-to-income (DTI) ratio are among the most critical factors considered when determining housing loan eligibility. It is defined as the part of an individual’s income used to repay existing liabilities.

Higher FOIR decreases loan eligibility. Financial institutes prefer individuals with lower FOIR or DTI, preferably within 40%. This signifies a higher disposable income and, therefore, better repayment capacity. 

• Adjust housing loan tenor

Housing loans in India come with lengthy tenors going up to 20-30 years. Opting for a longer tenor is one of the easiest ways to alleviate the burden of loan repayment without stressing the monthly finances. The long term equates to a lower monthly outgo, which aids comfortable repayment. 

Long-term commitment increases home loan eligibility as lenders assume this will help repayment without defaulting on the EMIs, especially since income increases each year. Applicants can use online tools like a home loan eligibility calculator and tweak the tenor to settle on an EMI that best suits their finances.

• Build a strong credit report

A credit report is used as a means to measure the credit behaviour of an individual. CIBIL score, one of the most important home loan eligibility criteria, is a measure of the borrower’s ability to repay the loan amount according to agreed terms.

Preferably, maintain a CIBIL score of 750 or above to improve your chances of loan approval. Repaying existing dues and keeping the credit utilisation ratio under 40% helps improve credit scores. Borrowers can also negotiate with the lender to get the lowest home loan interest rates with good CIBIL scores. 

Negotiation is a perk that is often enjoyed by existing customers of a lending institution. These individuals can also avail pre-approved offers that can help make the loan application faster and easier. These offers are applicable on various financial products, including home loan, loan against property, etc. You can check your pre-approved offer by providing your name and contact number.

• Opt for a joint home loan

Lenders can reject home loan application for several reasons like low income, low credit score, etc. One of the easiest ways to increase home loan eligibility is opting for a joint home loan instead of individual applications.

For home loans in India, borrowers need to consider a co-applicant who is their immediate family member, salaried or self-employed. Applications can even secure lower interest rates if the co-applicant is a woman. In this situation, the source of income for both applicants is considered in assessing the eligibility criteria. Moreover, both applicants enjoy benefits like tax rebates and share the home loan EMI burden, etc.

• Mention all income sources

If you are still falling short of fulfilling the home loan eligibility criteria, you can cite additional income sources such as income from rented houses, interest earned from deposit schemes, bonuses from your employer, or as part of any freelancing work. Make sure to disclose all the information in your application correctly to avoid the chances of rejection.

Before settling on a housing loan lender, conduct thorough market research and select one that offers the most favourable terms matching your requirements. Your home loan eligibility can gain a further boost by applying with a lender with whom you have a prior relationship. Such financiers are more likely to have faith in your repaying capabilities, given your past dealings.