Thursday, 31 March 2016

CIBIL Scores for Home Loans

It is every person’s moral right to claim a roof over his or her head. And it is every body’s dream to own a place of their own and call it home. In today’s time, given the property prices it is next to impossible to assume that one can buy a home without seeking external financial assistance. So whether you are looking at a dream apartment, buy a plot of land, seek loan for home improvements and renovations, planning to buy a home for your retirement days, construct a new home at a plot you own, make additions to your existing house or just make an investment in property, there is near surety that you will need a home loan to help you achieve your residentiary goals.

An ideal score for home loans

There is no specific benchmark score declared by banks or other financial institutions for home loans. However, it has been broadly observed that loans which are approved are for individuals who have a score of 750 or more. So, be it a car loan, home loan or a simple credit card, lenders prefer a score greater than 750.

Your score is a numerical representation of your creditworthiness. Having a good score will instantly leave a good and lasting impression on a lending institution. Timely repayments of existing credit, moderate use of credit, low portion of unsecured loans in your portfolio and not seeking too much credit are some of the factors that impact your score positively. This means, that once a lender views a decent score, it assumes that you follow healthy credit practices. This is a huge plus for a borrower.

You may have a score of “-1”. This means that your credit history is less than six months old and therefore you have not been given a score yet. A score of “NA” or “NH” may also mean that you have not had any credit relationship for the past two years. In both these situations, a bank may decline your application. What you can do is seek a minor credit like a simple credit card. Make small charges on it and repay them in full every month before the due date. After six months review your report and once you notice a favourable score, reapply for that home loan.

While one does not get a free CIBIL report in India, one can pay and get his report from any of the four bureaus in India.

Is a good score good enough to get my loan sanctioned?

It would be misleading to state that your scores alone are factors deciding the fate of your future loan approvals. A good score must be endorsed with an equally good credit report. We have had instances where clients would have a fairly fine score of 750+ yet, their applications would be rejected. The main reasons for this could be one of the following:

1.       There is a “settlement” or “written-off” account in your report. This means that either you paid less than what was due to you on an old credit account. Or that you did not repay it at all and the previous lender has written off your loan as “unrecoverable”. This is a good enough reason to put off a lender while evaluating your loan application.

2.       You have maxed out your debt to income ratio. The rule of thumb is that your monthly EMIs should not exceed 50% of your monthly income. So, if you have already maxed out your eligibility based on this rule, then even though you may have an impeccable record, banks will not indulge in future lending to you.

3.       Apart from your credit history, your income proofs and tax returns, standard KYC documents, bank statement, a clean title on the property are some of the other things that a bank considers while assessing your application. Any missing document or a fault in these documents can also be grounds for rejection of your loan.

When looking for a home loan, taking steps like buying a home insurance policy will help put a positive impression on the lender. This is because the lender will perceive you as a risk averse person and will view your portfolio with a less risky angle.

I have bad credit. Are there home loans for me?

You may have had a stroke of misfortune. It may have had shattering effects on your score. Nonetheless, you are willing to make a fresh start with a fresh dose of credit. The good news is that inspite of bad credit, home loans are not a distant dream.

Some very simple steps are listed here that you can undertake before you seek a loan.

1.       Seek your copy of credit report at least six to twelve months before you apply for a loan. Work on ways to improve credit score fast. You will find helpful articles on this on our blog.

2.       Support your loan application with income documents, which will help you to convince lenders of your payment capacity.

3.       Find yourself a guarantor of loan or a co-applicant, with a favourable score.

4.       Take adequate measures to make sure that you do not default on any of the payments. Over time your score will improve and in future you will have a less hassled process to deal with.

In a nutshell

Whatever be your residentiary needs, there is high probability that you will have to ask for a home loan to help you fulfil it. A high CIBIL score is imperative to your loan application being approved. Thus, it makes it absolutely obvious that maintaining a high credit score and a healthy report endorsing your score should feature on the top of your priority list of your financial deeds.

Patience pays. Especially in the credit world.


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