For most home buyers, availing a home loan is the only way to realise home-ownership aspirations. While most buyers usually focus on interest rates during loan selection, there are other factors to be considered for increasing loan-approval chances at an optimal cost and ensuring uninterrupted loan servicing thereon.

Here are some crucial checkpoints for those planning to avail the loans:

Create a corpus

As per RBI guidelines, banks and Housing Finance Companies (HFCs) can finance up to 75-90% of the properties’ value in the form of home loans. The proportion of the property cost financed is termed as LTV ratio. In case of home loans of up to ₹30 lakh, the RBI has capped the LTV ratio at 90%. In case of home loans between ₹30 lakh and ₹75 lakh and above ₹75 lakh, the ratios have been capped at 80% and 75% respectively. The balance has to be financed by the borrower himself in the form of margin contribution or down payment.

The final LTV ratio would also depend on the credit risk policies of the lenders. Thus, one should aim at creating a financial corpus of at least 10-25%, preferably higher, of the target-property’s value. A higher down payment would reduce the interest cost and can also raise the chances of loan approval. Some lenders offer lower interest rates to those opting for lower LTV ratios.

Optimum loan tenure

Home-loan tenures usually range from 10 to 30 years. While a shorter tenure results in lower interest cost, it also leads to bigger EMIs. Moreover, lenders prefer to lend to those whose total EMIs, including those of the planned home loans, are within 50-60% of the monthly income. Applicants exceeding this ratio have lower chances of loan approval. One should use home loan EMI calculators online to find out whether total EMIs would be within the aforementioned limit. If it does not, borrowers can opt for a longer loan tenure and/or make a higher down payment to increase home-loan eligibility.

Credit report

Credit score is one of the first filters used by the lenders for evaluating loan applications. Applicants with strong credit history and good credit score have higher chances of loan approval. Many lenders also offer lower interest rates to those with higher credit scores. One should ideally have credit score of 750 or above. The first step towards building a strong credit score would be to fetch credit report at regular intervals. Then, report discrepancies in the credit report, if any, to the credit bureau(s) for rectification.

Also, one must follow healthy credit practices like repaying credit bills/EMIs by the due dates, monitoring guaranteed or joint loans and avoiding multiple loan/credit card applications within a short duration to steadily improve credit score.

In case you have never availed any loan or credit card, build credit score by availing credit cards. If you are unable to do so due to eligibility constraints, then opt for secured credit cards to buildcredit score.

Compare loan offers

Interest rates, tenures, LTV ratios and even the loan amount offered by various lenders can vary widely depending on their credit risk policy. This makes it important to compare loan offers from as many lenders as possible, before taking the final call.

Start the process by first reaching out to lenders with whom you maintain deposits or have availed loans or credit cards. Some lenders offer lower rates to existing customers with good credit profiles. Then, visit online financial marketplaces to compare the loan offers of other lenders based on your credit profile. Opt for the lender offering the optimum deal in terms of total borrowing cost and EMI affordability.

Emergency fund

Failing to repay home loan EMIs during financial emergencies can cost hefty penalties and adversely impact one’s credit score. The best way to avoid this is to include the home loan EMIs of at least six months in the emergency fund.

As an alternative, one can also consider home loan overdraft schemes like Max Saver, Maxgain etc. In these schemes, an overdraft account is opened in the form of savings or current account and linked to the loan account. One can park surpluses in this account and make withdrawals as per requirements. The interest cost would then be calculated after deducting the balance in the overdraft account from the outstanding loan amount. Thus, the overdraft facility would help in reducing the total interest cost while ensuring liquidity during financial exigencies.

(The writer is Head of Home Loans, Paisabazaar)

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