Getting rejected for a home loan can be a major setback for anyone, but it’s not the end of the journey. With a little planning and smart steps, you can turn a bank’s ‘no’ into a ‘yes.’ Here are 7 easy and effective ways to ease your financial worries and help you realize your dream of buying a home.
Add a Co-Applicant for Home Loan Approval
If you have a low income or a poor CIBIL score, seriously consider adding a co-applicant instead of applying alone. Adding your spouse, parents, or children as co-applicants increases your loan repayment capacity. The combined income of two people reassures the bank and significantly increases the chances of approval. The bank believes that if one applicant is unable to pay the installments, the other applicant will, reducing their risk.
Increase the Down Payment and Reduce the Loan Amount
Banks always consider the loan-to-value (LTV) ratio. By paying a higher down payment, you can significantly reduce the bank’s risk. When the loan amount is lower, the EMI (Equated Monthly Installment) also decreases. A lower EMI makes it easier for the bank to believe that you can easily repay the installments, thus making it easier to get the loan approved. This step demonstrates your financial strength.
Improve Your CIBIL Score
A poor CIBIL score is the most common reason for home loan rejection. A score above 750 is considered optimal. To improve this, pay your EMIs on time, clear your old debts as soon as possible, and correct any errors in your credit report. Once your score improves, apply again after a few months. A high CIBIL score is a sign of trust.
Improve Fixed Obligation to Income Ratio (FOIR)
Banks check your FOIR (Fixed Obligation to Income Ratio). If it’s more than 50%, the loan may be rejected. Fixed Obligation refers to the portion of your monthly salary you use to repay existing loans (such as personal loans, car loans) and credit card bills. Before taking a new loan, reduce your FOIR by paying off smaller debts, such as personal loans and credit card balances. A low FOIR indicates that you have sufficient monthly income to pay the new EMI.
Extend the Loan Tenure
Extending the loan term reduces your monthly EMI. A lower EMI means you have more room in your monthly income, which gives the bank confidence that you will repay the loan on time. Although you may have to pay higher total interest over a longer period, this is an easy way to increase your chances of approval.
Strengthen your relationship with your old bank
Apply for a loan with the same bank where you have your salary account or savings account. This bank is already familiar with your financial record, making it easier to trust them. Banks readily lend to long-term customers because they know their financial stability.
Contact a Non-Banking Financial Company (NBFC)
If you’re repeatedly receiving rejections from your bank, consider a Non-Banking Financial Company (NBFC). NBFCs have slightly more flexible rules than banks, and you can even get a loan with a lower credit score. However, you should keep in mind that interest rates can be slightly higher than those of banks, so choose wisely.