With RBI slashing its repo rate by 25 basis points on Friday, home loan EMIs are likely to see a decline. The revision in monetary policy is seen as the start of the interest rate cut cycle. As a result, loan EMIs are expected to fall.
If you are contemplating raising a home loan to buy a house, you might want to wait a slightly longer before the banks pass on the benefits of rate cut on to the borrowers.
Additionally, your credit score should be high enough to be able to raise a home loan. What should be the ideal credit score to raise a home loan?
Typically, one should have a score of anywhere between 650 to 700 to get the approval for a home loan. However, a good score is seen as 750 or higher.
These are some of the indicative scores:
I. When it is more than 750: Highest probability of approval with lower interest rates.
II. Between 700 to 749: Good approval chances but could face slightly higher interest rates.
III. Between 650 to 699: Possible approval, but with higher interest rates and stricter terms.
IV. Below 650: It is difficult to get an approval; a bank may call for a co-applicant or a higher down payment at the start of the loan.
How to improve your home loan approval chances
If your credit score is low, follow these steps to improve your chances of approval:
- Take steps to improve your credit score:
These are some of the steps you can take to improve your credit score:
i) You should pay EMIs and credit card bills on time since the late payments hurt your score.
ii) Keep credit utilization below 30 per cent. You should avoid maxing out your credit limit.
iii) Refrain from applying for multiple loans at once as too many loan inquiries reduce your score.
iv) Check your CIBIL report for errors. And dispute inaccuracies to improve your score.
v) Maintain a good credit mix – A mix of secured (home/auto loan) and unsecured (credit card) credit helps.
2. Higher down payment: Banks consider lower Loan-to-Value (LTV) ratios favourably.
A higher down payment (20-30% instead of 10%) reduces loan risk.
3. Apply with a spouse: when you apply with a spouse or family member with a good credit score improves approval chances.
4. Longer loan tenure: When you opt for a longer tenure, your EMI will fall, making repayment easier and increasing approval chances.
5. Show stable income: Banks usually prefer salaried applicants with stable job history or self-employed applicants who have regular income records. You should, therefore, provide income proof such as salary slips, tax returns, and bank statements.
(Note: Raising a loan comes with its own risks. So, due caution is advised)