Simple Steps to Follow to Improve Chances of Home Loan Approval

In India, buying a house is considered to be among the biggest milestones in life. Due to rising property prices across the country, you may need financial assistance to achieve this goal. Fortunately, there are several banks and non-banking financial companies (NBFCs) across India that offer home loans today. You can easily apply for a home loan online.

Understanding Home Loans

Home loans are the most popular way of financing the purchase of a house. It is a secured loan that is especially designed to provide financing for the purchase of a house or property, and has interest rates comparatively lower than personal loans. The repayment tenure of home loans is generally up to 20 years. You have to repay home loans in EMIs or Equated Monthly Instalments. Each EMI you pay comprises a principal repayment towards the home loan and an interest component.

How Do Home Loans Work?

• Loan Application: First of all, you have to apply for a home loan online. This has to be done by filling out the lender's loan application form with financial and personal details, property information, and employment history. You will have to submit the loan application along with certain important documents. The specific documents required may vary based on the type of property (e.g., new construction, resale, or plot purchase), but common requirements include:

• Proof of Identity and proof of address, like Aadhaar card/ Passport/ Driving License/ Voter ID and PAN Card

• Land Tax Paid Receipt
• Processing fee cheque
• Possession Certificate
• A Sale Deed, Katha, Transfer of Ownership

• Loan Approval: The lender would carefully go through your loan application form and the submitted documentation. They shall assess your home loan eligibility based on multiple factors, like credit score, income stability, property valuation, and Loan-to-Value (LTV) ratio.  LTV ratio is the percentage of the property value that a bank or financial institution can lend to a property buyer.

• Loan Disbursement: If your loan is approved, the lender will disburse the loan amount to you or directly to the seller of the property. The loan disbursement process may involve legal documentation and property registration.

• Repayment: After receiving the loan amount, you would have to repay it to the lender through EMIs over the chosen loan tenure.

Tips to Improve Chances of Home Loan Approval

As you apply for a home loan online, its approval would be among your major concerns.  There are many factors that impact the odds of home loan approval, like your credit score, chosen tenure, and income. Here are a few tips you can follow to increase the chances of loan approval, as well as secure better terms and interest rates.

• Maintain A Good Credit Score: The credit score of a borrower is among the prime factors that determine their eligibility for a home loan. A credit score is a three-digit number ranging from 300 to 900.  A good credit score and credit history would reflect your creditworthiness, and the lender would use it to evaluate your repayment capacity. All lenders usually have a minimum credit score requirement for processing the home loan application. While the exact credit score requirement may differ from one lender to the other, most of them typically require a credit score of more than 750. You can improve your credit scores by paying your EMIs and bills on time, as well as keeping your credit utilisation ratio low.

• Reduce Your Debt-To-Income Ratio: Before approaching a lender and submitting your application for a home loan online, you should try to pay off all your existing debts. This includes any loans you are currently paying off, and also your credit card bills. This would lower your debt-to-income ratio. Having multiple debts and unpaid credit card bills can negatively impact your creditworthiness, and make it difficult for you to obtain a new loan.
  

• Save for a Down Payment: A down payment refers to the sum of money you pay upfront when buying a house. Lenders usually prefer borrowers who can make a sizable down payment, as it lowers the amount of loan they would need to buy a house, along with the risk of default. You should try your best to save enough funds to make a considerable down payment in order to improve the chances of home loan approval.

• Choose A Longer Tenure: Home loans are usually available for a tenure of up to 15 years. Opting for a longer tenure would allow you to spread out the EMI payments over an extended period of time, which can help make your overall finances more manageable. A longer tenure results in a lower EMI amount, which would be easier to repay on time, thereby reducing the chance of default for the borrower.

Following the tips discussed above before applying for a home loan online would not only increase the odds of loan approval, but also help you get a better deal on the home loan.