Buying a home is a lifelong dream for many. It is a milestone that requires serious planning, savings, and oftentimes, financial help by way of a home loan. However, getting a home loan is much more arduous than merely filling out an application. The banks or financial institutions thoroughly assess the various areas of your financial life before a loan request is granted. Even one minor mistake can spell disaster upon rejection, thus putting you in jeopardy.
Get to know the ground rules and avoid the common traps that often ensnare home loan applicants. In this article, we shall highlight the key mistakes that every home loan applicant must refrain from committing, as they are bound to ruin his chances of getting approved for a home loan. Let’s begin!
Down Payment: The Foundation of Your Home Loan
Whenever you apply for a home loan, the very first thing is that lenders look into your ability to make a down payment. Most banks generally finance only 80% of the property value, so keeping aside the remaining 20% from personal savings is mandatory. In case you are not able to arrange for this amount, rejection of your loan application is extremely probable.
The second thing is, if you have another few loans and credit card debts, banks may start to question your financial stability, which, of course, raises huge red flags. Always make sure that your finances are in good standing before applying for a home loan.
Credit Score: The Gateway to Loan Approval
The CIBIL score plays an important role in deciding the eligibility of a loan application. A score over 750 is good since it raises a good impression on the lender as one who is a low-risk borrower. If, however, one has defaulted on loans or has missed making payments on EMIs in the past, the credit score is adversely affected.
A low credit score will not only put your home loan application at risk of rejection but will also increase your chances of getting higher interest rates. Hence, you should exert efforts to establish a solid credit history showing timely payment of bills and EMIs. A higher score equals fewer hassles in the home loan transaction.
Repayment Capacity: Prove You Can Handle the Loan
Banks need assurance of repayment before granting loans. They assess income, monthly expenses, and other financial commitments that can affect repayment capacity. Hence, too high a loan amount application may lead to loan rejection.
To improve your chances, pre-calculate your ability to afford the EMI. Online EMI calculators give you a precise idea of how much you can comfortably repay monthly. This will also set a good impression on the lender that you are keeping your finances in check.
Age Matters: Timing Your Loan Application
Another factor considered by lenders is your age. Young professionals with questionable work experience or aged nearing retirement may, therefore, be looked at less favorably by banks. This is because either up-and-down incomes or a shorter loan repayment window brings about a perception of higher risk.
Home loan schemes for senior citizens are there in some banks, but terms and conditions tend to be stringent. If you are somewhere in between, banks might approve your home loan or reject it altogether.