The process behind a home loan is no different.
It is easy to meet with a home finance company/ bank and pass their initial grades. Getting them to give you the amount you need is a different matter altogether.
Read on to see how you can win them over.
1. Avoid other loans
If you are planning to take a home loan in the near future, don't indulge in any lavish spending.
Don't take a car loan, a personal loan or any other loan for that matter.
If you must take a loan, try and pay it back before you apply for a housing loan.
Try and clear all debt on your credit card. No, I don't mean stop using your card. Just make sure you are not carrying forward your payments from one month to the next and clearing just the bare minimum.
The key is to avoid being in debt when taking a housing loan.
Housing finance companies tend to think that when a person has a big loan/ many loans, a large part of his/her salary will go towards clearing it/ them. This means he does not have too much money left towards the clearing of his/ her home loan.
Incidentally, not having too many loans on your head is a good thing for you too.
But, hold on. If you are in debt, do not lie to the finance company or try and hide any information. If you break their trust, they will show you the door.
2. Avoid withdrawing large amounts from your bank account
Try not to move money around too much during the six months prior to taking a loan. The finance company may want explanations for large withdrawals and sudden deposits.
Don't make any major purchases at the time of buying the house.
Don't do anything that will hinder your ability to repay your loan.
Try and maintain a steady balance.
Try and keep enough money in the bank to convince your housing finance company that you can pay the margin amount of 15 or 20 percent.
The home finance company will not pay the entire amount that you will require to buy your home. They will only pay around 80 percent. You will have to put in the balance 20 percent. This is known as the margin amount.
3. Include all income other than salary
If you are getting a regular income from, say, a property rental, do declare it. It would go a long way in helping you get a higher loan amount sanctioned.
The finance company will not consider non-recurring income such as capital gains or even income from interest when deciding your loan eligibility. Do remember, though, additional security (bonds, fixed deposits, LIC policies, etc) helps enhance your credibility in their eyes.
4. Try and maintain a steady job
Too many job changes in the year prior to taking a loan could affect your chances.
If you switch from a salaried job to a self-employed position, you could well lose your chances at a loan totally. Once you start running your own outfit, you will have to show that your firm has been in existence for a few years, is declaring a profit and filing regular sreturns.
5. It is better not to apply alone
If the finance company cannot give you the amount you are looking for, then you can consider a co-applicant. The co-applicant must have a regular and consistent source of income. Such income will be considered in case you require a bigger loan.
~ The co-applicant's income need not be salary based. It can be earned though home-based jobs like tuition or tailoring. However, the finance company will insist on regular Income Tax returns being filed every year.
~ Only your immediate family member can be a co-applicant -- parent-child, husband-wife... In some cases, the company may even consider two brothers. A minor is not considered.
~ You can request the finance company to include your fiancée's income. They may do so, but the actual amount will be disbursed only after you get married.
~ In case a finance company insists on a co-applicant and you can't produce one, you will need to come up with a guarantor.
6. The importance of a guarantor
While a number of finance companies do not insist on a guarantor, providing one may enhance your creditability.
In certain cases, like the ones mentioned below, the finance company may insist on a guarantor.
~ The applicant is self-employed but lacks certain professional qualifications.
~ There is a likelihood that the applicant will be going abroad on assignments or relocating for a long stay (like the software industry).
~ The applicant gets transferred on a regular basis.
~ The applicant does not live in the same city in which he is purchasing the property.
~ The applicant is applying for the loan by himself and does not have a co-applicant.
You can ask a friend or family member to guarantee the loan. This will make them a 'guarantor' under the law.
However, the guarantor will have to fulfill the criteria relating to age and income.
If you fail to repay the loan, your guarantor will have to do so.
The rationale behind having a guarantor is that it puts a moral obligation on you to pay your installment (EMI) every month. Should you default for whatever reason, your guarantor has a legal obligation to pay up.
These six guidelines should help you win the trust of the home finance company/ bank.
If they are still not convinced, ask them to suggest what you could do to enhance your credibility.
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