Here are five factors that may impact your chances of getting a home loan negatively.
Your decision to purchase your first property is a very important and a life altering one. Not only do you have to be adequately prepared, in terms of finances, you have to ensure that the conditions are right for your home loan application to go through smoothly. Here are five factors that could become an obstacle if not taken care of on time.
When you apply for a home loan, it is a given that you are getting into a financial commitment for the longer term. While you do your best to prepare in terms of getting your papers in order and getting the funds ready for the down payment, your bank also must put you through a rigorous credit assessment process to ensure that lending to you entails the minimum amount of risk.
Your profession and tenure of work
All lenders will try and ensure that a borrower has steady source of income for a relatively long period of time. This means that if you have skipped too many jobs in the recent past and do not have at least a year’s salary slip to show as income proof, your home loan application may be put on hold.
Further, lenders prefer traditional industries when it comes to the choice of borrowers. They are not too impressed with new age entrepreneurial ventures that so many young people have either started themselves or are a part of such teams. Some lenders are also vary of lending to what they believe are jobs fraught with uncertainty.
Thus lawyers, media professional and those employed with the police department may find it a tad difficult to get a home loan.
A poor CIBIL score
You CIBIL score can be a make or break while applying for a home loan. First up, if your CIBIL score is less than 750 (out of 900) your application may get rejected right away. There are also other factors in your CIBIL report that may raise red flags for a prospective lender.
These are: too many enquiries or too much credit that you have availed of in the recent past. This indicates two things.
Firstly, that your repayment burden is already high and secondly you are credit hungry in nature and thus may not make for a very reliable borrower. Other factors such as too much unsecured credit (credit cards and personal loans) may also hamper your chances.
To avoid any such hassles, make sure that you have not applied for any new credit at least six months ahead of applying for a home loan. Also, in order to avail of a home loan, maintain good credit behaviour with your existing credit.
This means, you must make the payment of all your credit card outstanding in full each month and make timely repayments on your existing loans. Also maintain a good mix of credit (secured and unsecured loans) to ensure that your CIBIL score and CIBIL report are creditworthy.
No credit history at all
If you have been patting yourself on the back thinking that your home loan application will sail through because you have absolutely no credit to show for, you are in for a shocker, as this very factor may cause your loan application to get rejected. If you have no credit history, it means that the lender does not have any reference point to go back to as far as your credit behaviour is concerned.
Therefore, even though you are sure that you will not face any problem in making the scheduled repayments on your home loan, your bank will not take your word for it and may just nip your dreams of owning a home at the bud!
It is therefore prudent to have at least a few years of good credit history behind you before you think of applying for a home loan.
The age of the property
It is a standard practice for banks to sanction loan amounts for properties developed by real estate players that they have a tie up with themselves. This does not however mean that you cannot opt for a property of your choice.
However, if the chosen property is too old, the lender will carry out and independent evaluation and then perhaps lend you only a part of the purchase price. This is to factor in the chances of a structural collapse in the future.
You must not, therefore, select a property that is very old in order to avoid such glitches during the application process.
Your marital status
This unfortunately is true for women, even in this day and age. Despite the fact that many lenders have products specifically designed for women, single working women have trouble finding a lender who would give them a home loan without any bias. The premise of this “fear” is that a woman who is single now may stop working post marriage or childbirth, thus putting the repayment in jeopardy. While we are not suggesting that you should get married in order to avail of a home loan, if a marriage is on the anvil, we suggest you put off your home purchase till you tie the knot and then apply for a home loan jointly.
Also it could not hurt to share the repayment burden with your better half!
Thus as you can see, getting a home loan does not just mean arranging for the down payment on your home loan. Paying close attention to the above mentioned factors will ensure that your loan application goes through smoothly.
Photograph: eweledlion/Creative Commons
The author is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India's first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.