How to Get a Home Loan for the First-Time Homebuyer

Thinking about buying a home? Not sure where to start? Don’t worry we have you covered. In a few short steps, you will learn:

• The basic terms while applying for a home loan
• Why credit ratings matter
• Factors that banks take into account

So, before you apply for a home loan, check these points off your list for a hassle-free home loan approval.

Credit Rating

One cannot emphasise enough the importance of a positive credit score.

Check your credit score on CIBIL.

Also known as the CIBIL score, a credit score is the biggest indicator of a person’s financial credibility. From your credit card history to the times you have defaulted on the payments of any previous or pre-existing EMIs, your credit report tells a bank everything it needs to know about your financial habits.

While the CIBIL credit score ranges from 300 to 900, any score above 700 is viewed in a positive light by a financial institution. Find out how to increase your credit score in detail here.

Age

While banks feel comfortable extending a loan to salaried employees that fall between the ages of 20-60 years, those on the lower range of the spectrum are at an advantageous position.

For self-employed applicants, banks prefer people in the age group of 24 to 65 years. Not only are applicants in these age groups seen as financially stable, but lending institutions also assume that such people have more time left ahead of them to repay the credit.

Occupation

Applicants employed by institutions related to the government are viewed favourably by a lending body as they tend to see these jobs as stable forms of employment.

Self-employed applicants or those that work with a private company are usually given the lowest points by financial bodies.

Work experience

Banks require a person to have a work experience of at least 2-3 years in their current profession before even considering an application for a loan.

Self-employed applicants, on the other hand, should have been in the business for five years for banks to process their request for a loan. Also, those applicants that have long-term relationships with their companies at the time of application are seen in a much more favourable light.

Monthly income

An applicant’s monthly earnings are one of the major determinants while approving a home loan.

Lending bodies prefer extending loans to applicants who have a fair amount of disposable income left every month after the payment of their EMIs as this gives the bank a certainty about stable finances.

If the bank feels that an EMI would stretch your budget and put you at the risk of missing timely payments, then your application will be rejected.

Use this salary calculator to find out how much your banks consider as Net Pay.

If you are earning Rs 50,000 as your salary, banks typically don’t consider the LTA and medical allowance in your CTC as part of the amount available for you to pay your EMI!

Period of repayment

For banks, the shortest repayment period is the sweetest. A repayment period of five years is likely to get you brownie points from most financial institutions. However, once it enters double digits (read, over 10 years), your points keep on receding.

Ensuring your application is in sync with these factors is much more likely to get your loan application approved.

Have you applied for a home loan recently? How was the process? Let us know in the comments below!