Most of the populace is aware of the fact that the credit profile plays a vital role in access to credit and loans. In case you are the one who has poor credit and are looking at buying a house for yourself, you must be concerned about the availability of a loan for same. Since buying the house is a large ticket purchase and can only be achieved through loan proceeds, in most of the cases, obtain-ability of funding from the lending institutions becomes a must.
Especially in case of the millennials who are going to be the first time home buyers, and are worse off on credit scores in comparison to the earlier generation at the comparable same age, will find it difficult to have accessibility to the home loans.
Following is the advice that such home buyers to follow to be able to achieve their goal of living in own house.
The low credit score could be on account of two reasons. First due to the past repayment issues on the trade lines that you had held. And second, on account of low credit history. It is always better to discuss the issue upfront with the lending institution. Say you are applying for ICICI bank home loan, you must speak to the sales guy and visit their credit manager, if possible. Generally, the sales person himself will be able to assist you but a meeting with credit person shall be a definite plus. This will give you a clarity on the possibilities of getting an approval of the loan.
In case you can afford a larger down payment towards the purchase of the house will be a definite plus. In normal course, the home buyers are asked to pay a 20% amount from their own funds. If you could increase it to 30% or 40% of the property value, the bank can consider sanctioning the balance 60% to 70%.
LTV or loan to value, makes a lot of difference in the underwriting process. LTV is the exposure that the bank shall be taking in comparison to the actual value of the property. A wider gap in LTV gives a big comfort and the lender may be willing to extend funding.
The banks as a thumb rule, restrict the funding up to 50% of the disposable income. A person with poor credit if can prove that his has a much higher disposable income in comparison to the obligations that he still may be running with, can add to the comfort of the underwriter.
If you have been working with the same employer for a long time now, it will definitely be an advantage. A long employment history with a good employer is a testimony to the stability of job and continued income in future. This will help in adding comfort to the chances of your repayment of the loan.
In case you are buying a ready to move in house and shifting into it will help you save on the rent being paid currently, will add to the disposable income. This is something that you must speak about at the time of loan application. This would be an added advantage since it would not throw your finances out of gear and you would be able to show the availability of funds for both your home loan EMI and the essential expenses.
You must work on improving your credit scores. Even if you have been able to secure a loan to buy your dream house, you must work towards resolution of the issues that have led to impairment of your credit profile. Ideally, you should be planning in advance and applying for the loan only once the issues are addressed. This will also give you the chance of getting the funds a lower cost.
Home loans in India have the lowest default rate.