Many nurture the dream of owning a home because it endows you as well as your family with a sense of security & stability. However, with the rising property prices, financing purchases entirely on savings is very challenging. Thus, opting for a home loan through Shriram Housing Finance or DMI Housing Finance is one of the best ways to enjoy your dream of owning a home faster in life. However, as easy it sounds, availing of a home loan thoroughly depends upon your credit score, which requires being over 750. As the home loan repayment tenure is generally up to 30 years, many lenders make sure applicants pose a little credit risk by just approving home loans to individuals holding a good credit score.
However, if you hold a low credit score for a home loan, you may factor in the listed steps before making your home loan application:
Take required actions to ameliorate your credit score
In case you fail to meet the minimum credit score requirement for a home loan application, your major priority must be to first ameliorate your score before making an application for a home loan. Few easy steps like repaying all your outstanding dues within time, fixing any mistakes or errors in your credit report, limiting your CUR (credit utilization ratio) to 30 percent, etc., can help ameliorate your credit score.
However, you must note that the impact on your score is certainly not instantaneous. It will gradually over the next few months. Thus, whatever measures you are taking must be aimed at creating a long-lasting impact on your credit score.
Do not apply for the loan with multiple lenders.
Applying for multiple home loan applications in a short time period severely affects your score and takes various months to get back to normal. Placing multiple direct inquiries for home loan applications not just reflects such hard enquiries on your credit report but also indicates you as a credit hungry person, which subsequently reduces your credit score drastically.
A hard enquiry on your report means a detailed analysis of your previous credit behaviour to determine your eligibility. Every time a hard inquiry is placed by you, it gets reported to the bureau who reduces your score. One of the best practices to apply for a home loan without impacting your score is to route for the online financial markets. Placing loan applications through such markets are viewed as soft enquiries, which do not affect your credit score in any way.
Add in a co-applicant into your application.
You can consider adding in your family member in the form of a co-applicant with a good credit score & stable income if you are looking for a home loan with a low score. Placing home loan applications with a co-applicant enhances your home loan approval chances and can even provide you with higher loan proceeds. However, note that in a home loan, a co-applicant holds equal liability as a primary applicant for timely repayment of the EMI. Thus, in the situation of any default on the part of the primary applicant, the co-applicant is responsible for making full EMI repayment by the due date. However, you must remember, a co-applicant must have a strong credit score, preferably 750 and above and must financially repay the EMI.
Apply for the home loan with the existing lender
It is always better to apply for a home loan with a lender with whom you share a good relationship. Or you can apply for a home loan through HFCs and NBFCs because, in comparison to banks, HFCs carry out less stringent eligibility.
Opt for a higher down payment
Under regular circumstances, you are just required to pay at least 10 percent of the property’s value in the form of downpayment to avail of the home loan. However, in case you hold a lower credit score, making a higher down payment amount may make it simpler for the lender to accept your home loan. However, remember that this might just assist you up to a specific extent if you do not mitigate the minimum credit score requirement of the lender.
Other crucial factors to consider
When approving your application for a home loan, lenders also consider your employment status. Thus, if you are employed with a government organization or a reputed organization with decent income stability, it can enhance your home loan approval chances.
As per the guidelines by RBI (Reserve Bank of India), a lender cannot approve a home loan if you have no credit score. Thus, it is important to have a credit score before you apply for a home loan. You can build your credit score by applying for a regular credit card and using it for all your possible transactions, and ensuring to repay the same on time in full. In case you are unable to avail of a regular credit card due to no credit score, low income, or unserviceable location, you can avail of a secured credit card. It is a credit card against a fixed deposit. Disciplined use of secured credit cards can not only help you build your credit score but also boost your home loan eligibility chances due to a higher credit score. Being a secured card, credit cards against fixed deposits do not factor in credit score for determining the credit limit. As the credit card is issued against a fixed deposit, the credit limit is determined by the amount put in as collateral. Usually, up to 90% of the fixed deposit is issued as a credit limit in a secured credit card. In case you have a low or bad credit score and are looking to apply for a home loan, you must improve your credit score through the above-mentioned steps. Remember that it is very difficult to avail of a home loan with a low credit score. Even if you manage to secure a home loan, your loan may be approved at a higher rate of interest, which will increase your overall home cost.