Applying for a home loan on the basis of an optimal IME would improve your chances of obtaining a home loan
Owning a home is truly rewarding. The feelings associated with owning a home cannot be equated with anything else. But, lenders take a very cautious approach when evaluating mortgage applications, especially those involving the elderly. This can be attributed to greater uncertainty surrounding the lifespan of older people and reduced incomes.
If you are someone who wants to buy a home and you are retired, you can still improve the prospects for mortgage eligibility by following the steps outlined below –
Call on a co-applicant to benefit from a joint mortgage loan
Adding a co-applicant to your home loan application increases your chances of getting approved because it reduces the lender’s credit risk. The co-applicant could be a family member who earns a stable income and a strong credit score, be it your son, daughter or even your wife. Indeed, having a woman as a co-applicant for a loan can have certain advantages. Many lenders offer concessions on mortgage interest rates to female co-applicants. It is generally 5 basis points lower than the rates charged to male borrowers.
Keep in mind that any delay or default on the mortgage loan would also have a negative impact on the co-borrower’s credit scores.
Go for a lower LTV ratio
Essentially, a loan-to-value ratio (LTV) is the proportion of the value of the property financed by the lender in the form of a loan. The remaining cost of the property is to be contributed by you in the form of a down payment or margin contribution. According to RBI guidelines, the LTV ratio of a home loan can go up to 75-90 percent of the cost of the property, depending on the loan amount. Lenders can set a lower LTV ratio for home loans based on their risk assessment of home loan applicants.
If you’re looking to take out a home loan after you retire, it’s a good idea to borrow small. A lower LTV will not only reduce your overall interest charges and EMI burden substantially, but will also reduce the lender’s exposure, which will invariably increase your chances of securing a successful home loan.
Assess your EMI accessibility before applying for a home loan
Lenders take your EMI accessibility into account when evaluating a loan application. Your overall loan repayment obligations, including the EMI of the new home loan, should be between 50-55% of monthly income. Therefore, it is important for you to identify the optimal home loan IME before submitting the application. Use the online EMI calculators to find the optimal EMI. Always consider your unavoidable expenses, health costs, and monthly contributions to critical financial goals.
Applying for a home loan on the basis of an optimal EMI would improve your chances of getting a home loan and, at the same time, reduce the risk of EMI default caused by aggressive repayment schedules.
Maintain a good credit rating
Whenever you apply for a loan or credit, it is standard industry practice for lenders to immediately withdraw your credit report from the credit bureaus. This allows them to get useful information about your past credit behavior and to take a call as to whether your loan application can be processed further or not.
Lenders generally view those with a credit score of 750 and above as financially disciplined and, therefore, pose a lower credit risk to lenders. Therefore, those with a credit score of 750 and above have a better chance of having their loan application approved. Many lenders have also started offering lower interest rates for home loans to those with higher credit scores.
Therefore, be sure to collect your and the co-applicant’s credit report from the credit bureaus or online financial markets. This would allow you to take corrective action to improve your credit rating and that of your co-applicants. Observe healthy financial habits like paying off existing IMEs and credit card bills on time, keeping your credit utilization rate within 30%, monitoring secured or co-applied loan accounts, avoiding multiple loans, or credit card applications in a short period of time, etc. establishing or improving credit scores.
Checking your credit report before applying for a home loan would help identify any errors or discrepancies, if any, in the credit report that could unnecessarily lower your credit rating (s).
The author Head of Home Loans, Paisabazaar.com
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