Reader Query & Resolution

1) Why is a good CIBIL Score required for Home Loan?

When you apply for a home loan, financial institutions (FIs) check your CIBIL score, a rating provided by the Credit Information Bureau (India) Ltd (CIBIL). This score, a three-digit number ranging from 300 to 900, is derived from detailed credit information gathered from banks, FIs, and other credit institutions. Based on this data, the bureau generates scores and reports for individuals.

Your CIBIL score is a summary of your credit history, factoring in elements such as past payments, settlements, defaults, write-offs, secured versus unsecured loans, credit card usage, and loan equities. The bureau updates the CIBIL score every 30-45 days as they receive new data from credit institutions. If there are any disputes with your bank or FI that affects your score, you can contact the bureau to have your information updated.

Most banks approve home loans for applicants with a minimum credit score of 700. If your score is below 650, you may find it challenging to secure a higher loan amount. Therefore, maintaining a score of at least 700 is crucial for obtaining a home loan at an attractive interest rate.

To boost your credit score in the long run, focus on timely loan repayments, keeping your credit utilization ratio at 30% of your limit, maintaining a mix of secured and unsecured loans, clearing all existing debt, and reporting any discrepancies in your credit report.

Remember, maintaining a good CIBIL score can unlock better financial opportunities, especially when it comes to securing loans. Therefore, it's essential to practice sound financial discipline.

2) When should one consider Home Loan Balance Transfer?

A Home Loan balance transfer allows you to transfer your outstanding loan amount from one lender to another, restructuring terms such as interest rates and repayment options to better suit your financial needs. While opting for a Home Loan transfer, remember that you may incur charges such as processing fees, legal charges, and other applicable costs. Ensure that the benefits of transferring the loan outweigh these costs to make it a financially sound decision.

Balance transfers can be beneficial in several ways:

• Lower Interest Rates: Resulting in reduced EMI burden.
• Flexible Repayment Options: Allowing you to choose repayment plans that fit your needs.
• Top-up Loan Option: Enabling you to borrow additional funds for other purposes at a lower interest rate compared to personal loans or credit cards.
• Improved Customer Service: If dissatisfied with the customer service of your current lender, transferring your loan to a lender with better service can make managing your loan more convenient.

These points should be considered while choosing a new lender for the balance transfer.

Documents that are to be collected from your existing lender includes:

• Letter of Consent: A formal application informing about the home loan transfer and requesting a consent letter.
• No Objection Certificate (NOC): Stating that the existing lender has no issues with transferring your home loan to the new lender.
• Foreclosure Letter: Confirming that the home loan is foreclosed on a stated date with no outstanding balance, obtained once the new lender pays your outstanding loan amount to your existing lender.
• Property Papers
• Pending Post-dated Cheques

It's crucial to consider all these factors while choosing a new lender for the balance transfer.

3) What percentage of the property value can one expect to be approved for a home loan?

Typically, home loans are offered with an LTV ratio ranging from 75% to 90% of the property value, depending on the loan amount.

According to RBI norms, the general guidelines are as follows:

a) For loan amounts up to Rs 30 Lakhs, the LTV ratio is up to 90%.

b) For loan amounts between Rs 30 Lakhs and Rs 75 Lakhs, the LTV ratio is up to 80%.

c) For loan amounts exceeding Rs 75 Lakhs, the LTV ratio is up to 75%.

Lenders also consider factors such as your income, credit score, repayment capacity, and the location and condition of the property while determining the LTV ratio.

You need to arrange your own contribution for the down payment, which ranges from 10% to 25% depending on the LTV ratio and loan amount.

Additionally, you should account for registration and stamp duty charges, processing fees, and other expenses, as the loan does not cover these costs.

4) How to enhance Home Loan Eligibility?

Lenders may limit the amount they can sanction based on your eligibility, but you can increase your eligibility in the following ways:

1. Apply for a Joint Loan: One of the effective ways to increase your home loan eligibility is to apply for a joint loan with an earning family member, such as your spouse, parent, or sibling. When you apply for a joint loan, the combined income of both the applicants is considered, which can help you get higher loan. Additionally, both the applicants can individually receive tax benefits based on their respective share of loan payments if they are co-owners of the property.

2. Increase the Loan Duration: The EMI amount is directly related to the loan duration; a longer-term result in lower EMIs (Equated Monthly Instalment) and vice-versa. By opting for a loan with a longer duration, the EMIs become more affordable, allowing you to apply for a higher loan amount. However, the maximum loan term is determined by the lender based on factors such as your age, profession, and other considerations.

3. Improve Your Credit Score: A high credit score significantly improves home loan eligibility. Applicants with high credit scores can secure home loans at attractive interest rates. Therefore, improving your credit score can enhance your eligibility and make it easier to obtain a home loan.

4. Prepay Existing Loans: Lenders assess your repayment capacity to ensure that you can repay the new loan. They use parameters such as the Fixed Obligations to Income Ratio (FOIR), which helps them understand the percentage of monthly income needed to repay existing loans. Thus, paying off existing debts can improve your home loan eligibility.

When a lender approves a home loan, they assume a considerable risk. To mitigate this risk, lenders carefully assess the borrower's profile based on the above parameters, and only eligible applicants receive loan sanctions.

5) How can women benefit from taking Home Loans?

In today’s modern era, women are taking leadership roles and asserting their equality in various aspects of life. They are increasingly becoming independent, heading households, and making critical decisions such as purchasing a new home. As the number of women applying for home loans has risen significantly in recent years, many lenders are offering special benefits to further encourage this trend.

Here are the specific home loan advantages for women:

• Lower Interest Rates: Many lenders in India perceive women as more financially responsible than men. To incentivize them to invest in assets like real estate, lenders often provide women with home loan interest rates that are several points lower than the standard market rates.
• Extended Repayment Terms: Selecting the right repayment tenure is crucial when taking any loan, as it directly influences the EMI amount and affordability. With housing loans tailored for women, many lenders offer flexibility in choosing the loan tenure based on their financial situation and repayment capacity.
• Reduced Stamp Duty: Purchasing a home entail- paying a stamp duty, a statutory expense typically ranging from 1% to 3% of the property's value, varying by state. To encourage women in home ownership, several states offer a 1% reduction in stamp duty rates, leading to substantial savings. For instance, on a property worth Rs. 1 crore, this reduction can save up to Rs. 1-2 lakhs.
• Additional Tax Benefits: Under the old tax regime, repayment of the home loan principal is eligible for a tax deduction of up to Rs. 1.5 lakhs annually under Section 80C of the Income Tax Act. Similarly, interest payments can be deducted up to Rs. 2 lakhs per year under Section 24. When a woman is a co-borrower and co-owner of the property with her spouse, both can individually avail of these tax benefits.
• Additional Perks: Many Indian lenders attract women borrowers with supplementary benefits such as vouchers, special credit card offers, complimentary holidays, and small gifts. These perks enhance the appeal of home loan offers for women borrowers.

Therefore, as a woman seeking a home loan, there are numerous advantages to take advantage of. If owning a home has been your long-standing aspiration, now could be the ideal time to apply for a home loan and turn your dream into reality.