Effects of Credit score on Your Home Loan Eligibility

High credit score is important

Lenders look at your credit profile before deciding to lend, at what interest rate and loan amount. Similar to recruiters looking at your resume/interviews to offer job Or Not. Your home loan eligibility depends on your credit report. Your credit report is sought after your home loan application.

5 C’s home loan eligibility

1) Credit history

Your credit history determines your credit worthiness and loan repayment capabilities. Banks assign a credit score to each applicant. Credit scores are from 300-900. Usually 750 score is considered Good for home Loan. Click here for the list of factors considered in your credit history.

One should apply for credit score and check details themselves. This will help rooting out pain points of your credit score and present a strong case to Bank. You can also save processing fee and time, if your score is not up to the mark, presently.

2) Capacity

Lenders need to make sure; you will pay up in future. Your credit research is means of determining the as surety of repayments. Your credit score determines home loan eligibility i.e the loan amount banks will sanction to you.

Your debt to income ratio is determining factor for credit capacity.

Your financial capacity determines your Housing Finance eligibility.

3) Collateral

For secured loan product such as home loan, the applicant pledges something that they own. In this case, the property is taken as collateral. The value of collateral is considered for loan amount.

4) Capital

Your assets, investments, savings and other repayment sources are also considered as capital other than primary income source for loan repayment. Capital is helpful in future repayments when primary source of income is not available.

5) Conditions

Present market & economic conditions, government policies, employment growth etc also effect lending practices of banks.

Best practices of keeping good scores

Pay your Dues & On Time

Defaulting on loan repayments reflects negatively on your credit score(CIBIL). Defaulting on credit card payments is also a negative on your credit score. The records of your default are maintained for years.

It is very important that you pay all your Dues in time.

Automate EMI payment

Ask Bank for facility in which you’re EMI will be deducted automatically from your account. If not possible, make a mental note of it. Make a reminder of EMI payments in your smart phone. The reason is not miss the Due date.

Don’t miss EMI due dates

A single day of delay shows up in credit score report.

If for some reason, one could not pay on time. Write an application to your bank branch manager for not reporting it. (for the lack of better words)

NOTE: If the EMI due date is not convenient to you, One may request the bank to change the due date accordingly.

Multiple credit cards

Your credit history is because of credit cards, online transactions and previous bank loans. Having more than 2 credit cards is negatively viewed by bank’s credit team. If you have more than 2 credit cards, make payments and close unwanted credit cards.

Any credit card defaults and remaining balances will show up in your credit report.

Note: Make sure and take confirmations that your unwanted credit cards are indeed properly closed.

Don’t exceed credit limits

Your credit transactions should not monthly exceed 35% of your net monthly income. Maxing Out credit cards, every second month shows very properly and reflects poor financial planning. The risk to lend is more.

Timely credit card EMI repayments

If you default in any loan repayments of any bank, it shows up negatively in your credit history. Banks are skeptic of defaulting applicants. Provide good reasons for any defaults that show up in your credit inquiry. Cheque bounce is also common problem with loan applicants.

[Source: https://loaneasy.in/effects-credit-score-on-home-loan-eligibility/]

6 Options You May Not Think of While Taking a Home Loan

Ignorance is bliss, but not for loan buyers. Many home buyers are unaware of the several options available when it comes to a home loan. Call it “research fatigue” or the lets-get-this-out-of-the-way syndrome, majority of home loan borrowers look only for interest rates. Here are six options you are likely to ignore when finalizing a home loan deal.

Bridge loan: If you are looking to purchase a new property after selling off an existing one, bridge loans are for you. A bridge home loan provides funds for down payment to buy the new property until your current house doesn’t get sold. This is a better option than an expensive personal loan, and comes with tenure of one to three years. You can dispose of your property within that period and pay it back.

Through Housing Finance Company If you are unable to sell off your property within the stipulated time period, you can get your bridge loan converted to a mortgage loan albeit with a slightly higher rate of interest.

Note: Approach the bank for a bridge loan only after you have shortlisted a buyer for your property as bridge loans in most cases are facilitated only after you enter into a formal agreement for sale with a prospective buyer.

Flexi Loan: Flexi loans, as the name suggests are smart payment options, where your loan account is linked to a current account which functions like an overdraft account. You can withdraw amount from a home loan account as per the sanctioned limit. And whenever you have excess money, it can be diligently parked in the account and the principal outstanding of the loan is adjusted for the balance kept in the account by taking a weighted average.

The biggest advantage of a flexi home loan is that you withdraw money only as per your requirement and save on interest outgo for the loan.

Note: It is important to note that the interest rate for flexi loan is usually higher than that of a traditional home loan. Opt for it if you are likely to get surplus money which can be parked in the loan account regularly. Borrowers who have taken loans against under-construction property can also benefit from it.

Teaser loan: With the uncertainty over interest rate fluctuations of loans during the past few years, banks have introduced teaser loans to offer some respite. Teaser loans are fixed loans for a pre-determined period of two to three years. After that it changes to floating rate loan as per the prevailing base rate at that time.

Tranche EMI Home Loan: Many loan takers fail to calculate the huge amount they are losing as Pre-EMI. Home loans taken against under construction properties often call for a good sum to be paid as Pre-EMI, as the loan disbursement is linked to the level of construction, and the actual EMI starts only after the full disbursement. And until the actual EMI doesn’t commence, borrowers end up paying interest for the disbursed amount. The situation worsens if the project gets delayed.

Opt for a Tranche based EMI payment option here. Under this, you can start making EMI payments soon as the first installment of the loan is disbursed. Here you are repaying for the undisbursed amount, but the total output remains the same, and it saves you from Pre-EMI.

Note: If you think that you are paying additional amount under Tranche EMI option, you are wrong. The only difference is that unlike regular EMIs that start only after full disbursement, here you are starting it early.

Proportionate release: Imagine that you have shortlisted a flat that costs 70 lakhs, but your loan eligibility is only 50 lakhs. You may get the loan amount only after paying off the down payment, i.e., Rs.20 lakhs, but you are finding it difficult to raise that amount now.

You can talk to your bank about a proportionate release option. Under this option you can make the down payment in installments and the loan amount will also get disbursed proportionally to meet the builder’s payment due dates. This allows you to have more flexibility to manage your finances.

[Source: https://blog.bankbazaar.com/6-options-you-may-not-think-of-while-taking-a-home-loan/]