If you have a property with a clear title, you can get a loan against your property, which is a good way of getting access to quick cash when you need it. However, there are a few criteria that you may have to meet.
Before you apply for such a loan, you would do well to check for your loan against property eligibility to avoid disappointment.
Tips to Improve Your Loan Eligibility
Most people feel that having property automatically entitles them to a loan against it. However, a lender will have certain criteria for you to qualify for a loan.
Here are a few tips to ensure that you are eligible:
Include a Co-Applicant
Including a co-applicant with a good credit score can ramp up the maximum loan amount. It reflects an increase in equated monthly installment (EMI) affordability. The lender is likely to include the income of both applicants. The common practice is to apply jointly with a female family member. A woman co-applicant will attract a lower rate.
Maintain a Good Credit Score
A lender will attach significant importance to your credit score. A high credit (CIBIL) score reflects your ability to repay the loan within the agreed tenure. CIBIL scores range from 300 to 900, and a score of 750 or above is considered desirable for sanctioning a loan against property.
Fixed Obligation to Income Ratio Factor
Your fixed obligation to income ratio (FOIR) is a percentage that reflects the proportion of your debt against your income. Ideally, your FOIR should be below 40%, although sometimes lenders will consider you for a loan even if your FOIR is between 40% and 55%.
FOIR is not something that lenders will tell you about. But they use it as an indicator to decide how eligible you are for a loan. Therefore, you will be at an advantage if you know your FOIR. To be on the safe side, keep your total lending as low as possible to increase your loan against property eligibility.
Open an Account with the Lender
When you have explored various lenders and shortlisted a few, you can open an account with the most likely candidate. Open the account well in advance of when you require the loan, perhaps at least a year before the time you need the money.
Already having an account with the lender from whom you wish to get a loan makes you an existing customer. Lenders favor existing customers against new ones in all transactions.
Conversely, you can start applying for loans from banks and financial institutions where you are already a customer. It is important to have a rapport with the lender you wish to apply for a loan against property.
Highlight Your Additional Income Sources
If you can provide details of alternative income sources, it greatly helps your chances of getting loan approval. You may have income from rent, as interest earned from fixed deposits, or income from an additional job where you work as a freelancer.
Some employers offer variable pay through incentives, commissions, awards, and monthly bonuses. If you earn such money from your employer, you can provide details of the extra income earned along with your regular income (salary slip).
Ensure that the information on additional income sources is accurate and complete. Any ambiguities in the information can cause your application to be rejected.
Pay Up Your Existing Loans
As we mentioned previously, your fixed obligation to income ratio (FOIR) is dependent on the number of loans that you have in your name. If your debt-to-income ratio is on the higher side, you can pay up some of your loans. The percentage will automatically reduce.
Ensure that the loans you have already paid up are reflected in your CIBIL record. Another useful way of reducing your debt-to-income ratio is to pay your credit card in full every month. Lenders will look at this spending habit favorably.
Choose a Long Tenure
You can get a home loan with a tenure of up to 25 years. If you choose a longer-term, you effectively show the lender sufficient time to pay back the loan.
A longer tenure will also result in smaller equated monthly installments (EMIs), effectively making your loan easier for you to pay back. You can offset the increased interest due to a longer tenure by slightly increasing the EMI every year, in line with your annual salary increment.
As we have highlighted here, there are many eligibility criteria that lenders consider before sanctioning a loan. Knowing a bit about these criteria and ensuring that you meet them can make it possible to qualify for a loan against your property. Also check for your loan against property eligibility to avoid disappointment and a longer tenure will also result in smaller equated monthly installments (EMIs)