You’ve been searching for months, looking at property website after website, going on numerous site visits and finally, you have found the dream home for you and your family! Congrats! You've got just one more hurdle to cross before you settle in your dream home – getting the home loan approved.
With property prices soaring to tens of lakhs rupees or even crores, purchasing a home today is next to impossible without the help of a home loan. Thankfully, home loans are readily available. But not all home loan applications are successful. Even a simple mistake can cause your home loan application to be turned down.
A Home Loan Rejection Can Hurt You in the Long Run
Getting your home loan application rejected can be devastating emotionally. After all, you’ve spent months fantasizing about your dream home and seeing that dream crushed at the last minute can be huge.
Besides emotional upheaval, a home loan rejection can also lead to other troubles. For example, when a home loan application is rejected, it acts as a red flag for other lenders, making it difficult to get approved for a home loan from another lender in the short term. Hence, you need to make sure that you get your home loan approved on the first attempt.
Worry not! CreditMantri is here to help! We've compiled the best home loan tips to get your loan application approved fast. With proper planning, you can get your home loan approved within a few days and make your home dreams come true.
Best Tips to Qualify for a Home Loan Quickly
Tip #1: Work on Building your Credit Score before you Apply
A good credit score and credit history works in your favour while applying for a home loan. Having a credit score of 750+ improves your eligibility. It helps you secure multiple home loan offers from the top lenders at the best interest rates. However, note that it's not possible to build your score overnight. Depending on your current score levels, it takes anywhere from 3 to 24 months to boost your credit score.
So, if you plan to take a home loan in the next year, make sure to start working on your credit score right now. Here are a few tips to improve your credit rating:
- Start by checking your credit score for free. This gives you a clear picture of where you stand and what needs to be done.
- Never default on your credit card bills and EMIs. Repay them on time and in full.
- Don't max out your credit card. Try to keep the utilization ratio below 30%.
- Don't have too many ongoing loans. Try to close a couple of loans before you apply for a big home loan.
Tip #2: Get your Credit Report Sorted and Free of Errors
Besides checking your credit score, you also have to scrutinize your credit health report. Your credit report is generated by credit bureaus, and there might be errors due to misreporting by lenders. So, make sure to get the latest copy of your credit report and scan it carefully to check if it's missing any information.
If you notice errors on your credit report, then report it to the corresponding credit bureau and get it rectified. Besides evaluating your credit score, home loan lenders also check your credit report before sanctioning your home loan application. Hence, it’s essential to keep it free from errors.
Tip #3: Apply for a Joint Home Loan
A joint home loan has higher chances of approval. When you apply for a home loan jointly with your earning spouse or any other earning member of the family, the loan is more likely to get approved. Lenders generally prefer joint home loans as there are two incomes, hence the higher chances of repayment.
Another benefit of a joint home loan is that it makes you eligible for a higher loan amount, as the repayment capacity is higher. Also, including a woman as the co-applicant helps you enjoy concessional interest rates. Most lenders offer preferential home loan rates for women borrowers.
Additional Reading: Top 3 Benefits of a Joint Home Loan
Tip #4: Go for a Longer Tenure
Applying for a home loan with a longer tenure brings down the monthly EMIs, thereby reducing the stresses on your monthly budget. Lenders generally prefer home loan applications with a longer-term and smaller EMI, reducing the chances of defaulting on monthly EMIs.
Smart Home Loan Tip: You can initially apply for a longer tenure and make part-repayments as and when you get surplus funds. This helps you close the loan ahead of schedule, helping you save on the overall interest outgo.
Tip #5: Have all Documentation Ready and Prepared
One of the main reasons for home loan rejection is the lack of required documents. Not having the necessary documentation can cause home loan processing to be delayed or even rejected. Hence, make sure that you check on the lender's website and get all the documents ready and prepared.
Here are the standard documents required for most home loans:
- For salaried employees – The list of documents is simple. It includes ID proof, address proof, salary slips, and IT statements for the last few years.
- For self-employed professionals – You have to provide documents for both yourself and for your business. This includes ID proof, address proof, proof of business ownership, GST statements, IT returns, revenue statements, etc.
Tip #6: Fix your FOIR
Apart from the credit score, the FOIR (Fixed Obligation to Income Ratio) is another crucial factor that lenders consider while evaluating your home loan application. The FOIR is the ratio of your net monthly income to the total loan payments per month.
For example, let's say you earn Rs. 1 lakh per month, and you pay EMIs on several loans for a total of Rs. 50,000 per month. Then your FOIR ratio is 50.
A high FOIR of 50 or more is not favourable for your home loan application. So, before you apply for a home loan, try to pre-close at least a couple of ongoing loans like a personal loan or two-wheeler loan to reduce the FOIR ratio.
Suggested Reading: The Impact of Debt to Income Ratio on Home Mortgages
Tip #7: Choose a Reputed Property Developer
Real estate is tricky, and lenders prefer borrowers who operate with reliable and trusted property developers. When you choose a reputed property developer, there is a high chance of the project being completed on time and without any legal tangles.
Also, most lenders have tie-ups with the top property developers. Choosing a lender-approved property developer makes you more likely to get the home loan approved quickly and without much hassles.
Tip #8: Go for a Pre-Approved Home Loan
A pre-approved home loan is one of the best ways to get your home loan application sanctioned quickly. Pre-approved home loans are offered based on your repayment capacity. The home loan amount is decided based on your current financial records available with the lender. Generally, pre-approved home loans are sanctioned within one or two days after you provide the necessary documentation.
Tip #9: Choose to Pay a Larger Down Payment
Home loans do NOT cover 100% of the property price. Generally, home loans are offered only for 80% to 90% of the property value. The rest has to be borne out of pocket. This amount is known as the down payment.
Paying a higher down payment than what is necessary improves the lender's trust, thereby speeding up the home loan approval process.
Tip #10: Choose a Lender with whom you have a Good Relationship
Choosing a lender who knows your financial history, like the bank where you hold your salary account, helps you get approved faster. Before applying for a home loan, make sure to resolve any existing issues, like a disputed credit card charge. This way, you have a good relationship with the lender, and they are more likely to approve your application fast.
Purchasing your dream home is more than a financial transaction. It's an emotional investment. It gives you a sense of security, stability and a feeling of pride. So, make sure that you put the best step forward by following the smart home loan tips listed above.
FAQs for Home Loan
- What is the average time for home loan approvals?
Generally, it takes 2 to 3 weeks for your application to be processed and sanctioned. Once the loan approval is granted, the loan amount is disbursed within 3 to 5 days.
- Can I cancel the home loan after it is approved?
If you have not received the home loan amount, you can submit a formal letter to the bank requesting a cancellation. However, note that you will have to forego the processing fees paid to the lender.
- What is full and part disbursement?
Full disbursement means the entire home loan is disbursed in full via cheque or account credits. Part disbursement is usually for properties under construction. The loan amount is transferred to the borrower in parts.
- Can I get instant approval for home loans?
Yes. Most banks offer pre-approved home loans to eligible borrowers. The approval for these loans is instant and done online.
- What is the average tenure for home loans?
Since home loans are of a large amount, the average tenure ranges from 10 to 30 years.