Are you looking to purchase a home?
If yes, there are certain things you must consider before buying a new home!
The initial thing is your budget, home loan rate of interest, location, your overall number of years to repay your loan amount to be availed from the bank and lastly, your credit score. Combining these factors, your credit score gets 50 per cent of weightage as it defines your credibility.
Whether good or poor, your score determines whether you will be provided with a loan as per your terms and conditions. To be on the safe side, you must consider fetching your Equifax credit report, Experian credit report, CIBIL credit report, and CRIF Highmark credit report. By fetching these credit reports, you can better understand where you stand and make the required steps to improve it.
So, in case you are struggling to know your ideal score for a home loan, continue reading. Here you will learn the 5 most crucial parameters that you must consider before placing an application for a home loan.
What is the preferred ideal score for availing of a home loan?
Preferred credit score for home loan equals 750 and above. A strong credit score enhances the chances for faster approval for a home loan. However, a strong credit score is not the sole parameter behind your loan approval. Also, it depends on the lender’s conditions and eligibility criteria. Applicants who meet the eligibility qualifications for a lower interest rate on loan proceeds that they obtain with other crucial benefits.
What does your score say regarding your home loan eligibility?
The table below will allow you to know the difference between the credit score ranges and what it indicates about your home loan eligibility –
|750 – 900||Good credit score No or little chance of becoming a defaulter Highlights disciplined credit repayment behaviour Error-free report Shows zero default payments made Lower interest rate Higher negotiation power|
|650 – 749||Good credit score Shows responsible behaviour towards loan or credit EMI repayments Eligible for loans and credit Low risk of becoming a defaulter A reasonable interest rate is charged against the loan.|
|550 – 649||Shows irresponsible credit payment habit Fair credit score Shows an attempt towards multiple hard inquiries|
|300 – 549||Chances of becoming a defaulter Low credit score Shows your undisciplined payment habit Indicates missed or delayed credit payments Highlights higher dependency on credit|
What is the importance of credit score for a home loan?
Before you process the home loan application, financial institutions ensure to look at your credit score as well as your repayment behaviour. Credit bureaus collect as well as organize all your info about your credit history and make them available to the lender. The data and all details are accumulated via the financial institutions. Credit bureaus then process your info on a monthly basis to generate a CIR (credit information report) about your credit history in detail.
Next, financial institutions make use of the CIR to decide whether to approve your home loan application and the interest rate at which it must approve your application for a loan. A strong credit score and a CIR report can help you as a borrower to obtain desired loan proceeds. As credit score shows your credibility as a user, it becomes a necessary parameter considered by lenders.
Also Check: Experian Credit Report
How can you ameliorate your credit score to avail home loan application approval?
Read on to be aware of the important guidelines which can help you ameliorate your score for a home loan –
· Assess your credit report at least twice a year.
· In case there’s any error or problem, or mistake in your report, ensure to file a dispute and get the same corrected as soon as possible for a higher credit score.
· Do not make multiple hard inquiries.
· Do not leave any kind of unpaid balances.
· Ensure to set reminders to repay your credit card dues and loan EMIs on time.
· Avoid applying for a new loan instantly after the rejection of your past loan applications.
· Always ensure to repay your credit card dues by the due date and on time.
· Ensure to maintain a disciplined, clean and strict repayment record.
· Limit your CUR (credit utilization ratio) to 30 per cent.
· In case you make offline payments of your loan EMIs and credit card dues, submit your cheque to the financial institution or banks at least a week before the loan EMI or credit card due date.
If you step by step follow the above practices, you will have a good credit score, which will improve your chances of not just securing a home loan but also other loans and credit cards.
Is it possible for you to avail yourself of a home loan if you hold a low score?
An individual with a poor credit score can still avail of a home loan. However, the interest rate on a loan will be higher. In simpler words, if your score is low, lenders, banks or financial institutions may provide you with low credit at a high rate of interest and processing charges.
The major reason for this, as mentioned above, is your credit score shows your repayment capacity and your potential to serve the loan or credit card dues on time and in full. Having a poor credit score discourages lenders from providing you with a loan with a low-interest rate. To compensate for their credit risk, they often may allow you the required loan proceeds but at a higher rate of interest.
What are the crucial documents required for home loan eligibility?
To qualify for a home loan, you must place the listed documents. While the required documents might vary from one lender to another, the standard documents required for verification purposes usually is the same. Read on to learn the standard home loan documents required for processing your home loan application –
· Consent to fetch your credit report
· KYC documents with self-attestation
· Bank statements
· Returns on income tax investment over the past 3 years
· Salary slips for the past 3-6 months
· Property papers