Becoming a homeowner is one of the tallest goals one sets for oneself. You get free from the vicious cycle of changing homes every few years due to the insistence of the landlord. Though, the rising prices of residential properties across India have made it virtually impossible for anyone to buy residential property on the down payment. Therefore, you must get a Home Loan to realise this dream of yours.
Home Loans are offered by multiple financial institutions in India, including leading banks and NBFCs. SBI Home Loan, HDFC Home Loan, ICICI Home Loan, are some of the best home loan schemes in India. As the amounts offered as a Home Loan are substantial, lenders follow strict eligibility criteria to screen the applicants. One of the most important parameters that is given the highest weightage by the lenders is the Credit Score of the applicant. As a matter of fact, your application for a Home Loan will be processed further only if your Credit Score meets the eligibility criteria of the lender. In case your Credit Score is lower than required, then it may become extremely difficult for you to get a Home Loan.
Credit Score and Home Loan
A Credit Score is a numerical representation of the creditworthiness of a borrower. Credit Rating Bureaus follow a particular process to assign a Credit Score to an individual. In India, TransUnion CIBIL is the leading Credit Rating Bureau, and CIBIL score is considered as the industry benchmark. CIBIL rates the creditworthiness of an individual out of 900.
Having a good CIBIL score is essential for your Home Loan application to be considered favourably by the lenders. The ideal CIBIL Score for Home Loan is 750+, which is regarded as an excellent score and significantly boosts your prospects for being approved for a Home Loan. Though a CIBIL score for a Home Loan of 650+ is also considered good anything below 650 is a red flag for lenders.
How to get a Home Loan with low Credit Score?
Your CIBIL Score could be low due to any number of reasons, and a low Credit Score can drastically reduce your chances for a Home Loan approval. Though, this is not the end of the road for you. You can still be eligible for a Home Loan with a low Credit Score, but you need to plan your approach to realise this goal.
Here are some tips to help you get a Home Loan with low Credit Score:
Check your CIBIL Report: RBI has instructed all Credit Rating Bureaus in India to offer one free credit report to all individuals once a year. Take advantage of this opportunity and check your CIBIL report for free. Read the report in detail and check for any mistakes that could have lowered your Credit Score. If you find any such issue, raise it with CIBIL; and get the issue removed from your report as soon as possible. This will subsequently improve your CIBIL Score. Moreover, if there are any defaults in repayments of your loans, your lenders will ask you for the reasons for the same. So, you must prepare your answers and supporting documents to satisfy their queries.
Prepare financial documents: As your CIBIL Score is low, you need to prove your creditworthiness to the lenders with other financial statements. Maintain a good banking record with sufficient balance in the account, make your EMI payments on time, prepare a net worth statement, provide receipts of your investments, attach sources of additional income, etc. Lenders are primarily concerned with your ability to repay, and by convincing them of your repayment ability and stable income, you can get your Home Loan application approved. You must also get all your documents approved and certified from a CA to establish the authenticity of the documents.
Apply with NBFC: Non-Banking Financial Corporations, NBFCs have emerged as a potent alternative to banks to avail Home Loans. Moreover, they follow lenient eligibility criteria and consider parameters other than Credit Score to assess an application. Though the rate of interest charged by NBFCs is slightly higher, you have a better chance of success with them. Moreover, after you have availed the loan, make timely repayments to improve your CIBIL Score over time, and then you can opt for a Home Loan Balance Transfer to another lender.
Add a co-applicant: If other members in your family have a stable source of income, and file income tax return regularly, and have a good CIBIL Score, then you can get them on-board as a co-applicant. By adding a co-applicant, your eligibility for a Home Loan improves significantly. You can get your spouse on-board as a co-applicant, and your Home Loan application would have excellent chances of being approved.
Apply with HFCs: HFCs or Housing Finance Companies are specialised NBFCs that deal primarily in Home Loans. They follow a relaxed eligibility criterion and accept applications from applicants with low credits core as well. They give weight to the financial strength of the applicant. So, if your CIBIL Score is low, but you enjoy stable finances, then you can apply with HFCs for a Home Loan.
Additional sources of income: You need to establish the fact to the lenders that you have multiple sources of income and enjoy good liquidity. This can be achieved by providing them with alternate sources of income, such as royalties, rent, commissions, etc. But you must make sure that these income sources are revealed in your Income Tax Returns also. Lenders do not consider cash income unless it is deposited in the bank on a regular basis.
The task of availing a Home Loan with low Credit Score is certainly not easy, but it is not impossible either. With careful planning and strict financial discipline, you can certainly realise your dream of becoming a homeowner.