4 Crucial Parameters to Check Before Applying for A Home Loan

As per any lender, may it be a Federal bank home loan, SBI or any other lender, basic eligibility to avail home loan is to have an age of at least 21 years. Besides this, lenders even put in place numerous factors which they verify to understand your home loan eligibility. These involve your income, age, credit history, place of residence etc. Thus, to avail home loan instantly of a high amount at a nominal rate, you should mitigate the eligibility criteria set as per lenders like Federal Bank home loan etc. 

Here, we will list a stepwise approach you should take to boost your eligibility for home loan set according to Federal bank home loan and other lenders: 

Review your credit report

Credit reports from the base for your home loan application evaluation procedure. Your credit score is dependent upon how consistent you are/how good your repayment history is for repaying credit card dues and EMIs. Your credit report issued by the credit bureaus contains your credit score. It is basically the past credit history regarding your borrowing from distinct financial institutions like banks or HFCs. 

Credit bureaus like CIBIL, Experian, CRIF Highmark, and Equifax prepare your credit score as per your credit records and past repayment and share the same with the lenders or banks on receiving an enquiry from them. The higher your credit score more is your chances of getting your home loan approved. Also, you may expect to avail a better Federal bank home loan interest rate or lower interest rate from other lenders as a bonus owing to a higher credit score. Thus, if you are planning to take a home loan, make sure to review your credit score at least 6 months before availing of it. Doing this will allow you to take the necessary steps to improve your credit score if it is low. 

Build your down payment corpus for a home loan

As per the guidelines set by RBI, home loan lenders can fund up to 75-90% of the value of home property via home loan. Note that the final LTV ratio proportion is decided by the lenders like Federal Bank home loans or other lenders basis their credit risk evaluation of home loan applicants. The remaining component requires being contributed by the applicant himself from their own funds. So, home loan applicants must aim at least to accumulate a corpus of 10 to 25% of the cost of a property before they make their final application for a home loan. 

Always ensure to contribute a higher loan amount from your own funds as it will lower your total interest component. Making a higher down payment contribution will even enhance your chances of availing of home loan approval as it lowers the lender's credit risk. However, to make a higher down payment contribution, do not compromise your contingency fund and important financial goals. Doing so might force you to avail of high-interest cost loans to meet financial emergencies or mitigate crucial financial goals. 

Compare among multiple lenders

Loan repayment tenure, rate of interest, processing charges, loan amount and LTV ratio provided by home loan lenders can differ widely based on the applicant’s risk evaluation. With multiple lenders like Federal bank home loans, SBI etc., available for a home loan, it might be the right decision to approach every lender for the comparison purpose. 

One of the best ways of doing so is to use an online financial market for striking comparison of various loan offers offered by different lenders based on the applicant’s credit score, monthly income etc. 

Check your EMI affordability

Lenders like Federal bank home loans, PNB, SBI etc., consider the repayment capacity of the applicants of home loans while evaluating their loan application. Lenders usually need the home loan applicants' month on month repayment obligation of a loan involving their new loan EMI and existing loan EMI to be under 50-60% of their NMI or GMI. The ones going over the limit usually have reduced chances of home loan application approval. 

Thus, ensure to contain your month on month loan repayment obligation to be under 50-60% of NMI or GMI before home loan application submission. If your loan repayment obligation is more than the set limit, then you must first consider bringing down your existing EMI by either foreclosing or prepaying some of your present debts. Also, consider choosing a longer repayment tenure or higher down payment amount to lower your overall EMI outgo to increase your chances of home loan approval. 

Build an adequate emergency fund

As you know that financial exigencies are uncertain in nature, they may strike anytime and harm your income, corpuses designated towards crucial financial goals, cash flows and most importantly, your loan repayment capacity. Inability to repay your loan EMI on time not only results in heavy penalties. It even affects your credit score negatively. While you can redeem your investments to repay your home loan EMI, doing this can negatively affect your long term financial health. 

A prudent way to face such situations is to form a sufficient backup as an emergency fund. The fund must be nearly six times your monthly mandatory expenses involving your existing EMIs alongside your new home loan EMI. Hence, the moment you start planning for availing of a home loan, try and simultaneously increase your emergency fund size by nearly 6 times your expected new home loan's EMI. As the financial exigencies can strike anytime, make sure to park your fund in highly liquid financial instruments such as fixed deposit and savings bank account. 

The next cost-effective way is to avail of home loan variants such as overdraft or interest saver options. Such options offer an overdraft account in the form of savings or a current account attached with a home loan. Applicants can deposit their surpluses in overdraft accounts & can withdraw from the same account whenever they need funds. As the home loan interest component of the loan account gets calculated after lowering the monthly average balance of the overdraft account from the outstanding loan amount, ensuring to park your surpluses in an overdraft account meets the same purpose as in the case of prepayments. On the contrary, easy liquidity provided by an overdraft account permits it to be the best tool for keeping your emergency fund.