Photo Credit – Home loan USA
Applying for a Home Loan
Recently in the US, with the prices of property skyrocketing, buying a home looks like a daunting task due to unavailability of funds. A home loan becomes necessary in such situations and is the best option to meet the shortfall in funds when you plan to buy a house either as an investment or for residential purpose. Although it has become easier these days to apply for or obtain a home loan, your application may be rejected for varied reasons. Your loan application may be rejected as banks feel that they do not want to increase their non-performing assets (NPAs). The repayment potential of an applicant is assessed based on various parameters.
In this article, we’ll look at these factors in detail and intimate you on why you should put them into consideration.
- Age Factor: Banks look at your age to understand your borrowing potential. If you are nearing retirement, banks reserve the right to say no to you. The logic here is the older an applicant is, the nearer he/she is to retirement, thus making it harder to advance a loan for extended terms like 25-30 years. Lending companies prefer borrowers in 20’s or 30’s with a stable monthly income. If you are nearing your golden years, go for a shorter term, which might end up increasing the equated monthly installment(EMI), but an approval will be more likely. It also means that you would pay less interest overall.
- The Limit You Can Apply For: Before approving your loan application, lending companies will make sure that your income is sufficient to take care of the loan repayment. For example, if there’s an outstanding loan/liability to the applicant’s name, banks would calculate the effective income by subtracting the monthly EMI that goes toward the outstanding loans. This is done to ensure that the fixed obligation to income ratio (FOIR) doesn’t exceed 50% of their monthly income. If you have other loans, try to add your spouse or family member as a co-applicant, given he/she is gainfully employed too to increase your borrowing potential.
- A good Credit Score: The Credit Score is your financial report card, which tells about your performance in repaying loans and Credit Card bills. It mentions about your payments, defaults, and misses. Most financial institutions, banks or lending companies now exclusively look at the Credit Score of an applicant to weigh the risk of lending to him. A score of 750 plus is considered healthy for lending while anything less than 600 is considered poor. An applicant with a poor Credit Score must work towards setting it right first by taking smaller loans and repaying on time before going for a home loan.
- Non-Payment Of Utility Bills And Other Delinquencies: Sometimes lending companies/banks run multi-layered checks on applicants and if they find out irregularity in payment of utility bills such as electricity bills, etc., they assess the creditworthiness of the applicant to be low. Delay in Credit Card payment/ EMI also reflect badly in your credit history, thus indicating low borrowing potential.
- Stability In Employment: Lenders take into account the job stability of a borrower. An applicant who has been there in the present job for at least two years is preferred over someone who has had too many job changes in a short while.