Introduction
Not all can afford to purchase a home without outsourcing, and thus, they have to rely on Home Loans to finance their purchase. Home Loans are the most simple and convenient way to get funds. However, for your home loans, your credit score should be at least 750, as set by the CIBIL.
What is CIBIL?
Apart from Equifax, High Mark, and Experian, The Credit Information Bureau (India) Limited (CIBIL) is a credit information company and is licensed by RBI to keep the credit record of every Indian citizen. Several factors can influence your credit score like:
Payment History
Payment history is analyzed to determine whether you’ve made payments on time, are any missed payments, the amount you owe, and whether there are any late payments. Consistent payments will help to create a good credit score, while recent late payments can lower your score.
Amounts Owed
Lenders follow a general rule, which is to keep the credit utilization ratio below 30%. How much of your available credit are you using, and are you responsibly using credit and paying it off on time, too?
Length of Credit History
Credit score calculations take into account how long you’ve had your oldest and most recent credit accounts open. In general, having a longer history of credit in good standing is better for your score, including payment history, length of credit history, amounts owed and new credit. This credit score carries a huge weight in India.
New Credit
Opening multiple new credit accounts in a short time can be a red flag to lenders, especially if you’re new to credit.
Types of Credit
Lenders survey if you can handle different types of credit responsibly, including credit cards, home equity loans, mortgages, auto loans, and student and personal loans.
What is the CIBIL score, and how much is required for Home Loans?
The CIBIL score is a three-digit number that shows your loan repayment behaviour and creditworthiness. Most credit scores range between 300 to 900. An individual should have a score of 750 for home loans, and 900 is, without any doubt, the best score for home loans. Lower credit scores can lead to higher mortgage interest rates, , which increases your monthly payment and overall loan cost.
Always keep your income, upcoming major expenses, debt-to-income ratio and credit scores in mind before beginning the home-buying process.
How does the CIBIL Score affect Home Loan Applications?
CIBIL score can impact home loan applications in many ways:
1. Application Rejection
When your CIBIL score is below the CIBIL margin, for example – below 600, lenders may reject your application. You may have a reasonable income and stable employment, but your credit score WILL matter. Moreover, your loan approval chances drop or may take more time to process.
Besides, when you apply for a loan, a strict inquiry is initiated against your permanent account number (PAN), further lowering your score.
Your loan can be sanctioned easily and faster when your CIBIL score is above 750. You will be percieved as financially responsible when applying for loans.
2. Higher Interest Rate
There is a chance that your loan will get sanctioned if your CIBIL score falls between 650 and 750, but the drawback with this score is that you will be charged a higher home loan interest rate. Basically, the interest rate for scores between 750 and 900 is lower than the scoring rate between 650 and 750. The interest rate is higher for applicants with lower credit scores because lenders assume a higher default risk when lending to such persons. Thus, your equated monthly instalments (EMI) and total debt servicing costs increase.
Other factors, such as your profile, loan amount, and your owned property, can also contribute to the success of your application.
3. Smaller Loan Amount
Financial institutions may look at your income and credit score to sanction loan amounts. People with smaller CIBIL score may recieve limited loans.
4. Lower Loan Tenure
With higher CIBIL scores, you can get flexible repayment tenures of almost 30 years. Simply put – Longer loan tenures lower your EMIs, making it easier to manage other financial obligations. But if your credit score is low, lenders will sanction loans for shorter tenures.
5. Lower Negotiation Power
The most disheartening part is that when your credit score is low, you are not in a position to negotiate favourable loan terms, such as longer loan tenure, lower interest rates, and larger loan amounts. Lenders may offer flexible terms to borrowers with excellent credit scores rather than low credit scores.
Factors To Consider Before Applying For a Loan
1. Confirm your income and employment status
Mortgage lenders will evaluate your gross income (total income before taxes) to check how much mortagage you could afford
2. Calculate your cash savings
You’ll also need a significant amount of cash for a down payment in the beginning. Usually, twenty – twenty-five per cent of your purchase price is the standard down payment. However, the exact amount depends on the immediate situation.
3. Consider outstanding debt
As per the rules, your DTI ratio should be below 36% before applying for a mortgage, or else the loan process will become complicated. Mortgage lenders consider your debt-to-income ratio divided by your gross monthly income as part of their evaluation process.
Ways to Increase Your Credit Score?
If your credit score is less than ideal, it’s advisable to improve before applying for a Home Loan.
Follow these steps to improve:
- Pay bills on time: Late payments or late EMI have a negative impact on your credit score. Avoid Multiple Loan Applications.
- Reduce your Credit Utilization Ratio: Your credit utilization should be below 30%-40% of your available credit.
- Check your Credit Report regularly: Identify any inaccuracies on a regular basis that may affect your score.
When Properties Matter – SPR India Matters
SPR India is a leading real estate developer founded in 1972 by Prithviraj S Kawad. It is dedicated to the acquisition and development of residential and commercial projects in Chennai. They are popularly known for their luxurious residential and commercial projects, including the SPR City integrated township, Market of India, and residential projects like Osian Heights and Osian Chlorophyll.
SPR India is recognized for its innovation and expertise in the real estate and property development space. When you are planning to buy a new home, SPR will be the perfect choice for you as it emphasizes trust and quality in its projects, providing a seamless and amazing experience for buyers.
Key Takeaways
When you’re a first-time homebuyer, maintaining a good CIBIL score can positively impact the success of your home loan application and your ability to secure favourable terms. Higher credit scores may qualify for better loan terms, lower interest rates and reduced upfront costs. Lower credit scores will limit how much money you can borrow, which could lead to higher interest rates or PMI premiums.
Before you begin the home-buying process, check your credit reports and credit scores to know about your credit structure, as well as keep track of the review of the information being reported by lenders and creditors about your credibility.
FAQs
1. Who can apply for a home loan?
Any individual who is a salaried or self-employed Indian and aged between 18 and 75 years with a minimum CIBIL score of 700 can apply for a home loan.
2. What is considered a good credit score for a home loan?
Lenders usually prefer applicants with a CIBIL score of over 750.
3. Does the CIBIL score affect home loans?
Yes, CIBIL scores significantly impact the process of home loan approval and the terms offered by lenders.
4. Can a CIBIL defaulter get a home loan?
It is not impossible to get a Home Loan even if you are a CIBIL defaulter.
5. Which bank gives a home loan without CIBIL?
State Bank Of India, HDFC Bank, ICICI, Axis Bank, etc, give loans without CIBIL.
