Here are some tips to help you maximise your chances of being approved for a home mortgage/ loan of your choice. Lenders look at several factors when determining whether to approve of your housing loan application.
Applying for a home loan can be one of the most significant financial decisions you will make in your life. Repaying a home loan can be a twenty or thirty year commitment, so it is important to choose the product that you think is most suitable for you over the long term. Once you decide on the best offer, it is important to try and ensure that you get approved for the loan of your choice since it has long term financial implications.
Here are some tips to help you maximise your chances of being approved for a home mortgage/ loan of your choice. Lenders look at several factors when determining whether to approve of your housing loan application. Keep the following suggestions in mind when you plan to apply for a housing loan:
1. Apply only with a good credit score: Typically, you need a minimum credit score of 750 for lenders to proceed with processing your application. A credit score of 750 or above reassures lenders that you are a responsible borrower and have a good track record of making repayments. Do not risk rejection by applying for a loan with a poor score. If you have a low score, it is essential to spend time improving it before applying for the loan.
2. Check your credit report well in advance to identify any weak areas and work on them: Once lenders know you have a good credit score, they look at your credit report. They check your history to see if you have a good record of making payments over a long period. They also check for any written-off accounts in the past to see if you have defaulted on any prior debt obligations. All these indicators of poor credit behaviour are red flags for lenders, even if your current credit score is adequate.
3. Pay off any loans if you have too many current loans: If you have too many loan obligations, lenders might think that you will not be able to take on an additional loan repayment on your current income and might turn down your application. They will look at your existing loan repayment burden to see if you can take on additional debt payments on your present and predicted future salary. It is a good idea to pay off any loans you can in full before you apply, to increase your chance of being approved.
4. Have stable employment status and salary: Lenders want to be assured that you will have a steady monthly income to pay off your EMIs over the repayment period of a home loan that can stretch over decades. They will look at your employment record to see if there is a high probability of steady employment and income during the long repayment period. You should have been in the same job or same company for at least a year at the time of applying. Frequent job changes will be viewed negatively by lenders.
Also choose a property that is not too expensive and that fits in with your income. If the loan amount you are asking for is greater than what you can afford, lenders may be unwilling to take on the risk of default and will turn down your application.
5. Ensure that your existing EMIs (including for home loan) do not exceed 70% of income: Make sure that the total monthly repayment outflow, across all your loans, does not exceed 70% of your income. Lenders want to make sure that you have enough income left over for your regular expenses and that you will not need to default on your repayments in order to fund your living expenses.
6. Have a clean title deed and complete documentation for the property: While this requirement is not related to your individual credit situation, banks want to make ensure that there is no problem with the collateral (the home) in case you default on your loan. They will first make sure that all the legal documents relating to the property are in order. In case the documents are not satisfactory, you run the risk of being rejected.
If you keep these tips in mind, your home loan application has a good chance of being approved.