Making a home loan application on the basis of optimum EMI would improve your chances securing a home loan
Owning a house is truly gratifying indeed. The sentiments associated with house ownership cannot be equated with anything else. But, lenders adopt a very cautious approach while evaluating home loan applications, especially the ones involving senior citizens. This can be attributed to higher uncertainty surrounding the life span of senior citizens and reduced income.
If you are someone who wants to buy a house and have retired, you can still improve home loan eligibility prospects by following the steps outlined below -
Loop in a Co-Applicant to Avail a Joint Home Loan
Adding a co-applicant to your home loan application boosts your chances of getting approval as it reduces the credit risk of the lender. The co-applicant could be an earning family member with a stable income and robust credit score, be it your son, daughter, or even your wife. In fact, having a woman as a loan co-applicant may have certain advantages. Many lenders offer concessions in home loan interest rates to women co-applicants. It is usually 5bps lower than the rates extended to male borrowers.
Keep in mind that any delay or default in home loan repayment would also adversely impact the credit scores of the co-borrower.
Opt for a Lower LTV Ratio
Essentially, a Loan-to-value (LTV) ratio is the proportion of property’s value financed by the lender in the form of a loan. The remaining cost of the property has to be contributed by you in the form of a down payment or margin contribution. As per the RBI guidelines, the LTV ratio of a home loan can go up to 75-90 per cent of the property’s cost, depending on the loan amount. Lenders can set a lower LTV ratio for home loans on the basis of their risk assessment of the home loan applicants.
In case you are looking to take a home loan post your retirement, it is pertinent that you borrow small. A lower LTV will not only trim your overall interest cost and EMI burden substantially but also reduce the exposure of the lender, which will invariably boost your chances of successfully securing a home loan.
Assess your EMI Affordability before Applying for Home Loan
Lenders consider your EMI affordability while evaluating a loan application. Your overall loan repayment obligations, including the EMI of the new home loan, should be within 50-55 per cent of the monthly income. Hence, it is important for you to identify the optimum home loan EMI before submitting the application. Use online EMI calculators to find out optimum EMI. Always factor in your unavoidable expenses, health-related costs, and monthly contributions towards crucial financial goals.
Making a home loan application on the basis of optimum EMI would improve your chances of securing a home loan and at the same time, reduce the chances of EMI defaults caused by aggressive repayment schedules.
Maintain a Good Credit Score
Whenever you apply for any kind of loan or credit, it is a standard industry practice on part of the lenders to immediately pull your credit report from the credit bureaus. This allows them to gain useful insights into your past credit behaviour and take a call on whether your loan application can be processed further or not.
Lenders usually consider those with credit scores of 750 and above as financially disciplined and thereby, carry lower credit risk for the lenders. Hence, those having a credit score of 750 and above have a better chance of having their loan application approved. Many lenders also started offering lower home loan interest rates to those having a higher credit score.
Hence, make sure to fetch your credit report and that of the co-applicant from the credit bureaus or online financial marketplaces. This would allow you to take corrective measures to improve your credit score and that of your co-applicants. Observing healthy financial habits like timely repayment of existing EMIs and credit card bills, containing your credit utilisation ratio within 30 per cent, monitoring guaranteed or co-applied loan accounts, avoiding multiple loans or credit card applications within a short span, etc can help in building or improving credit scores.
Checking your credit report prior to applying for a home loan would help in identifying errors or discrepancies, if any, in the credit report that may unnecessarily pull down your credit score(s).
The author Head of Home Loans, Paisabazaar.com
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