You can still apply for a home loan with bad credit
If you have a bad credit rating, getting a home loan could prove difficult. Having bad credit is not the end of the world. It still may be possible for lenders to give you a loan, provided your credit score is not too low. But be aware that you may pay a higher interest rate and more fees since you are more likely to default. So it’s in your best interest to improve your credit score in order to get a lower interest rate, which can save you thousands in the long run. There are however some steps you can take to give yourself the best chance of being approved. Every citizen of India dreams of owning their own home and this is the reason the banks offer home loans to turn every citizen’s dream into reality.
Before you even decide to take a home loan, it is imperative you need to ensure that your loan application gets an approval. Make sure you take your time to research and do a loan comparison so that you can apply for a home loan offering the best rate. Certainly, when it comes to best rates, it depends on various factors, most importantly your credit score. If you are eying for a loan offer low-interest rates, having a good credit score is imperative. Even a .5% reduction in the rate can mean huge savings in the interest payments throughout the loan term.
You may think that if you have a poor credit score, you will not be able to apply for a home loan. But, wait, what if I tell you that you still can apply for a home loan with a bad credit. Go on and read the following ways to get a home loan with a bad credit.
First and foremost, if you have a bad credit score, it is advised to avoid applying for any type of loan. Chances are more that your application will be rejected. If your application gets rejected, it will have a negative effect on your score and your rating will go plunging down.
Not many people are aware of the fact that their irresponsible payment behavior can bring down the credit score. Make a habit of paying your dues every month and most importantly on time. No matter what happens, never default on any payment.
Your bank will be interested in sanctioning a home loan on one condition – assuring the presence of a guarantor. This goes without saying that the guarantor should have enough finances and a good credit score. He/she should also be well-versed with the responsibilities of a guarantor if you are not able to make the repayment on the loan.
If you have a credit score below 650, make sure you avoid going to the traditional lenders such as banks. Instead, you can approach NBFCs (Non Banking Financial Companies) as they are more flexible and above all they take a look at various other areas of creditworthiness such as your job profile and scope of future income along with collaterals such as gold jewelry, but even then you will have a tough time negotiating if you have a low score.
Fixed Obligation to Income Ratio helps in the calculation of the total amount of the fixed obligations you are having in the month as a ratio to your monthly income. This ratio is decided by the bank and limit the loan amount such that the EMI payments requires a FOIR which is less than that is recommended by the bank. In the event, the bank has refused a home loan of a high amount, then you have the option of choosing a lower FOIR which in effect means a lower loan amount.
LTV is another ratio embraced by the banks, which captures the loan amount as a ratio to the total worth of the property. RBI has specified, that the banks are not allowed to lend more than 80%-85% LTV. However, banks follow their own standards. For instance – if you take a loan of let’s say Rs. 64 lakhs which work around 80% LTV. You can instead choose a lesser LTV, such as 65% or 70% and surge your own contribution.
If any of the above options don’t work for you, then it is advisable to take a step back and improve your credit score. If you have this option, make sure you have taken it seriously. Even if you can have a home loan with a bad credit, but on the flip side, you will have to make compromises for the interest rates, eligibility ratios, and tenure front.
A good credit score and healthy credit record will play a major role in clearing off the eligibility hurdle and will give an easy access to affordable and timely credit. You can always consult a credit repairing agency, they will not only help you improve your credit score but they will put you on a path where you don’t have to face similar issues in the near future.
Source: Reality Fact