What Should be My Credit Score to Get a Home Loan?

If you are also looking to buy your own home, then you must understand that with the ever-increasing cost of residential real estate across the entire country, it has become imperative for you to Get a Home Loan to be able to afford your own house. When you get a Home Loan, not only can you become the master of a home immediately, there are several other benefits that you can enjoy. The benefits offered by a Home Loan are really significant and make this option a financially wise decision. Some of the major benefits that you get when you avail a Home Loan are:

• You need not wait for the prices of residential properties to fall, which may never happen anyways. You can purchase your dream home instantly.
• You only need to pay the margin money initially to the lender. Rest of the amount is to be paid in monthly instalments over a period that may extend to more than 30 years.
• You can Get a Home Loan of up to 90% of the value of the property.
• You can avail income tax benefits on the principal and interest components of the Home Loan repayment schedule.
• There is no pressure on your personal financials as you have to repay the amount in EMIs (Equated Monthly Instalments) only, there is no need to make a one-off payment.
• Many lenders offer the facility of EMI holiday or interest only EMIs for the initial few years. Giving you ample time to recover from the significant expenses involved in purchasing a home.

Documents Required for a Home Loan

Most lenders are following a stringent criterion for ascertaining the eligibility for a Home Loan as the amount sanctioned is significant and requires financial stability of the borrower for many years.

Therefore, you only need to provide the prescribed Home Loan documents along with a cheque for the processing fees to get the application processed. The documents that are required for a Home Loan include:

• Income Tax Returns for the last three years
• Bank Statement for the last one year
• Net worth statement
• Salary certificate or salary slips for last six months
• Form 16 and Form 26 AS
• KYC documents (AADHAAR/PAN/Voter ID,and so forth)
• Photocopy of the entire property chain for last 30 years along with the sanction
• GST/VAT/CST returns, if applicable

Usually, these are the essential documents that are required for processing the Home Loan application. If any other documents are required, you must check with your lender beforehand.

What Should be My Credit Score to Get a Home Loan?

In the present scenario where the instances of NPAs (Non-Performing Assets) and bad debts are increasing, lenders have started following stringent screening criteria. One of the most important parameters they check is your credit score.

Your credit score is a numerical representation of your creditworthiness. It is calculated by credit information bureaus such as CIBIL, Experian and others based on a number of parameters which assess your past credit behavior. Your credit score is calculated out of 900. Under most circumstances, a credit score of more than 650 is considered ideal by the lenders for a Home Loan.

The most important factors that affect your credit score are:

• Number of running loans and amount outstanding
• Credit card utilisation ratio
• Timely repayments of the EMIs and Credit Card bills
• Number of loan applications filed in the recent period
• Defaults or write-offs by lenders

Therefore, it is important that you practice fiscal discipline to ensure that your score is always above the recommended threshold by the lender.

Benefits of a Good Credit Score

If your score is more than 750, then you can enjoy several benefits when you apply for a Home Loan or any other loan:

• Your application has higher chances of success because a high credit score indicates a responsible borrowing behavior from your side.
• You will get the lowest interest rates against your loan application, as the risk of the lender is reduced significantly.
• You enjoy a good reputation in the finance community and lenders would be willing to adopt a flexible attitude towards you.
• You can get the lender to change or modify certain requirements based on your past credit behavior.

What if Your Credit Score is Below 650?

• If your score is below 650, then also you need not be disheartened. It’s not as if your application for a Home Loan would be rejected, it’s just that you will need to serve a higher rate of interest as the lender’s perceived risk is higher.
• In such a situation you can accept the higher interest rate and purchase your house. When you are making timely repayments towards your Home Loan EMIs, your score will gradually improve.
• Keep a close eye on your credit report, and when your score goes above 650, you can renegotiate with your lender for a lower interest rate as per the prevailing market rates or can also choose to avail the facility of Home Loan Balance Transfer.
• If your credit score is below 600, then you must delay your plans of applying for a Home Loan as the application would most likely be rejected. You need to rather work on improving your score and seek professional help if necessary.