Are you planning to get a home loan? Well, who isn’t? Nowadays, almost everyone wishes to own a home. Whether you are a salaried employee or a business owner, if you are reaching out for home ownership financing, you must meet certain eligibility criteria. However, credit score remains the ultimate key to finding the best home loan deals.
Let us read on to learn how credit score or CIBIL score helps determine your eligibility and terms for borrowing. Before knowing that, let’s find out why people take up home loans in the first place.
Reasons Why People Opt for Home Loans
People take home loans for various reasons. It is primarily to fulfil their dream of owning a house or property. Some common reasons include:
Home Ownership
The primary purpose is to purchase a house or property for personal use, securing a place to live and call it your own.
Financial Assistance
Not everyone has sufficient funds to buy a house outright. Taking a home loan provides financial assistance, allowing individuals to afford a property by paying back the loan amount over a period of time.
Tax Benefits
Home loans in India often come with tax benefits. Borrowers can claim deductions on both the principal and interest components of the loan. The Income Tax Act helps reduce the overall tax liability.
Investment
Some individuals view the property as a solid investment. Buying a property with a loan might increase in value over time, providing potential returns on investment in the future.
Asset Creation
Property is considered a valuable asset. It can be used as collateral for future financial needs or as a backup asset for securing loans.
Now that you know why people opt for home loans, let’s look at the factors influencing such loans.
Factors Affecting a Home Loan
Several factors influence the approval, terms, and conditions of a loan for buying homes. Some key factors include:
- Credit/ CIBIL Score
- Income and Employment Stability
- Loan Amount and Property Value
- Interest Rates
- Debt-to-Income Ratio
- Loan Tenure
- Documentation and Eligibility Criteria
- Property Type and Location
- Market Conditions and Policies
- Relationship with Lender
Out of all these factors, creditworthiness or credit score is one of the most essential considerations on the lender’s side. Let’s learn more about them.
Why Does CIBIL Score Matter When It Comes to Home Loans?
The CIBIL score, also known as the credit score, holds significant importance when applying for a home loan in India. This score is a numerical representation of an individual’s creditworthiness, indicating their credit history and repayment behaviour. Here’s why the CIBIL score matters for obtaining a home loan:
Assessment of Creditworthiness
Lenders use the CIBIL score to assess an applicant’s creditworthiness. A high score signifies responsible financial behaviour. This, in turn, increases your chances, as a borrower, to indicate that you’ll repay the loan on time. This boosts the chances of loan approval at competitive interest rates.
Loan Approval
A good CIBIL score positively influences the lender’s decision regarding loan approval. A higher score typically leads to quicker loan processing and a higher probability of loan sanction.
Interest Rates
The CIBIL score directly impacts the interest rates offered on the home loan. If you have higher scores, you may be eligible for lower interest rates, resulting in reduced overall borrowing costs. Likewise, lower scores may lead to increased interest rates or even loan rejection.
Loan Amount and Tenure
A favourable CIBIL score can influence the loan amount sanctioned and the repayment tenure offered by the lender. A higher score may lead to a higher loan amount approval and longer repayment tenure options.
Negotiating Power
A good credit score gives borrowers leverage to negotiate with lenders for better terms and conditions on the home loan. As a borrower, it will strengthen your position in negotiating interest rates and other loan-related fees.
Credibility and Trustworthiness
A solid credit score reflects your financial discipline and reliability. Lenders trust individuals with higher credit scores, viewing them as less risky borrowers, thus enhancing the borrower’s credibility.
Tips to Maintain a Good Credit Score
In order to secure the best home loan details, it is necessary to maintain a good credit/ CIBIL score. Here are a few tips that can help you achieve a considerable credit score:
- Pay bills on time to avoid late payments
- Keep credit card balances low (aim for 30% or lower of the limit)
- Regularly check and correct errors on your credit report
- Limit applications for new credit cards or loans
- Maintain a mix of credit types
- Keep older credit accounts to build a longer credit history
- Avoid defaults or settlements on loans
- Be cautious with new credit accounts
- Practice responsible financial behaviour
- Stay informed about credit scoring and its impact
Securing the Best Home Loan Deals
The road to homeownership is easier than it seems. In addition to maintaining a good credit/ CIBIL score and other factors mentioned above, there is another thing to remember to secure a loan easily. A committed NBFC partner by your side can significantly increase your chances of cracking the best home loan deal.
Tata Capital is one of the reputed NBFCs with a suite of services for borrowers like you. If you want to secure a loan for your dream home, get in touch today!
