Other income, mortgage guarantee can help you increase loan eligibility

Topics Home Loan | e-home loan | mortgage

Many applicants have seen job losses, pay cuts, and deferments. Lenders fear that if they lend without due diligence, many of these loans may turn bad
In recent days, lenders are applying more stringent standards while approving home loans. For loans sanctioned before the lockdown, they are asking for income-related documents again and re-evaluating applications. In some cases, the loan amount is being pared.

Many applicants have seen job losses, pay cuts, and deferments. Lenders fear that if they lend without due diligence, many of these loans may turn bad. Due to the moratorium, many customers have not paid their EMIs, but the lenders (especially housing finance companies or HFCs) still have to pay to the banks they have borrowed from. Hence, they, too, are conserving cash. In these circumstances, let us look at how borrowers can improve their chances of getting a loan.     

Prove your credit worthiness: Borrowers need to work actively on providing lenders the comfort that they possess the requisite repayment capacity. Lenders are, for instance, denying loans to applicants from industries hit hard by the lockdown, like entertainment. “But what if you belong to a segment that has benefited from the lockdown, say, OTT (over the top) platforms? Explain that you have not been hit as badly as the rest of the industry,” says Aditya Mishra, founder and chief executive officer, SwitchMe, a digital home loan broker.

Quality collateral, higher down payment: Demonstrate to the lender that the property you are buying is of a high quality. Lenders worry about the value of the collateral declining precipitously. Buying a completed property will help because its value is unlikely to plummet as much as that of an under-construction property. Choose a reputed builder if you opt for the latter. Also, if you show willingness to make a higher down payment, lenders will be more willing to sanction your loan.

 

Show all types of income:  If your income is Rs 100, lenders will be willing to give a loan amount for which the EMI comes to Rs 50. Try to show a higher income. Include wife and father’s income, income from rental properties, agricultural income, etc. It will provide your lender the comfort that you can rely on other sources.  

Moratorium not opted for: If you did not opt for moratorium on an existing loan, inform the new lender. It will signal you have the ability to service a loan even during a crisis. If your bank put you on moratorium as the default option (as many PSU banks did), inform the new lender.

 
Doing the following things will also boost your chances: get a financial guarantor; ensure you have a high credit score (750 or above); and enlist the builder’s help in getting the loan 
sanctioned.

Close other loans: If your salary is Rs 100 and you already have EMIs worth Rs 30, the lender will consider your salary to be Rs 70 for calculating your eligibility. And you will get an amount for which the EMI is Rs 35. So, foreclose other loans by selling some investments or borrowing from family and friends. 

 
Discuss with the new lender the possibility of getting a top-up loan. “If your salary is restored to a higher level, you will be eligible for a bigger loan. And by taking a top-up loan you will reduce your interest cost, since it is cheaper than most others,” says Sovan Mandal, chief business officer, India Mortgage Guarantee Corporation (IMGC).

Including the income of other family members will boost your eligibility. Also, show secondary collateral such as other properties, insurance, fixed deposits, gold, etc.

Go for a tenor. If earlier you planned to take a loan for 15 years, increase the tenor to 30 (provided you have that many years to go till retirement.) This will boost your eligibility. Also, try to borrow at a lower rate as, with the same income, this will make you eligible for a bigger amount (see table).

Use mortgage guarantee: India Mortgage Guarantee Corporation’s (IMGC) mortgage guarantee schemes can help you both get a loan and become eligible for a higher amount. One product it offers is term extension. Most lenders give a loan up to retirement age — usually up to 60 for the salaried and up to 65 for the self-employed. With the term-extension product, borrowers in these categories can get their tenors extended till 70 and 75 respectively. “IMGC's mortgage guarantee can help customers get a 20-30 per cent bigger loan,” says Mandal. This guarantee comes for a one-time fee of 1.2-1.3 per cent of the principal. The fee is charged as part of the EMI and is spread over the tenor. IMGC has tie-ups with 15 lenders.

You could also try other lenders. Lenders have varied underwriting standards. “Some are willing to lend to riskier customers and give a higher amount. If the top lenders won’t lend to you, try others. Of course, they will charge a higher rate,” says Mishra. Loan aggregators can advise you on which lender to approach, given your risk profile.  

Pay fee to lower interest cost?

Some HFCs are currently asking their customers to pay a fee to transfer them to their best rate. This cost can be up to 0.50 per cent of the outstanding loan. “Compare the interest rates offered by other lenders as well. Opt for the home loan balance transfer option if the savings on interest cost after accounting for various charges is significantly higher than on resetting the interest rate with your existing lender. Otherwise, continue with the same one and pay the fee to reset to a lower rate,” says Ratan Chaudhary, head of home loans, Paisabazaar.com. A shift to a bank will mean faster transmission of rate cuts even in the future, since their loans are linked to an external benchmark. 

 
But check whether a bank is willing to lend to you. HFCs have more relaxed lending norms, which is why customers go to them despite the higher interest rates some have.  


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