16 JUNE, 2022

Getting your home loan approved can bring happiness and relief with the realisation that now you can buy your dream home without draining all your lifelong reserves. After all, home loans have made buying house property easier and more convenient. Once you shortlist the lender, you can fill out the application form, submit the documents, and complete the formalities online without visiting the bank branch. However, to avail a home loan, you must fulfil the home loan eligibility. But you must know that even though you meet the lender’s requirements, your eligibility can be compromised if you have old debts.


Here is why you must get rid of old debts before availing a home loan. Lenders are very stringent when approving home loans and they do so based on the home loan eligibility. Having old debts is one factor that can reduce your chances of availing a home loan. Having old debts can show your inability to manage money and can impact your debt-to-income ratio, impacting your eligibility. Thus, before you apply for a home loan, you must repay the old debts or consolidate them into one. Experts suggest keeping your fixed obligation to income ratio below 40 percent as it indicates that you are a responsible borrower. Having no debts increases your income to repay the loan and thus your home loan eligibility increases.


Here are a few other ways to increase your eligibility


  • Show additional income

If you earn additional income apart from your regular salary, you can declare that amount while filling out the loan application form. It can be rental income, investment or interest returns, or income from a part-time business. It will boost your financial profile and help avail higher loan amounts and lower the home loan interest rate.


  • Add a co-applicant

Lenders club the income of your co-applicant while determining your eligibility. Therefore, adding a co-applicant will enhance your income level and credit score positively, helping you in loan eligibility. Your co-applicant can be your earning spouse, a parent, or a sibling. However, it’s important that they have a good credit score and a strong financial profile that can enhance your home loan eligibility.


  • Maintain a high credit score

Your credit score can significantly impact your home loan. You need a credit score of at least 750 to get a home loan. Any score lower than that can lead to application rejection or high-interest rates. You can increase your home loan eligibility by maintaining a high credit score. It helps lenders gauge your repayment capacity and creditworthiness. You can increase your credit score by repaying old debts, paying any Equated Monthly Instalment (EMI) dues and credit card dues on time, and rectifying discrepancies on your credit report.


  • Pay a higher down payment

A higher down payment means reduced risk for the lender. Lenders usually ask for a minimum of 20% of the property value as a down payment. Paying more can help you avail a home loan with higher eligibility and better terms.


Your age, income, job profile, etc., are also responsible for your eligibility and home loan approval. You must consider all the factors to get faster loan approval and a higher loan amount.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.