Planning to buy your dream house but don’t have a good credit score? Yes, this is one major point which always haunts a property owner before buying a property. A good credit score decides the amount of home loan you will get while buying a home. In fact, this even determines if you are eligible to get a home loan at all or not.
Most of the banks do not prefer to give loans to such persons who have a low credit score because they think that these persons might not be able to pay home loan EMIs in proper time. So the question arises that what should one do if he/she don’t have a good credit score?
Here are few tips with which one can easily avail loans with a poor credit score:
Go for lesser LTV
By LTV we mean Loan to value, in this bank captures the loan amount as a ratio to the total property value. As per RBI rules, banks cannot lend more than 80-85 % LTV. So if you have a low credit score, banks will easily reject this loan amount. So the best thing is to opt a lesser LTV and try to add money from his or her own part.
Choose a lower FOIR
Fixed Obligations to Income Ratio (FOIR), is the most common parameter bank uses to decide on your loan amount. This is the ratio of your fixed obligations to your income. While calculating this ratio, the bank checks your fixed monthly installments on other items and the new loan amount you that have applied for. After seeing this they decide on the EMI payment plans. So if you have a poor credit score, then banks might not entitle you for a higher loan amount. In this case, you can go for a lower FOIR, which in effect means a lower loan amount.
Banks offer home loan while keeping your property as a primary security. So if you have a low credit score and you are keen on buying a new property, then another option is to keep your another property as interim security. If the banks are satisfied with this, then you can easily opt for a good amount home loan without compromising on LTV and FOIR part.
Pay high rate of interest
If you have a good credit score then you can easily avail the desired home loan with a low rate of interest for which you can easily negotiate with banks. But a person with a low credit score doesn’t have such options. They have to compromise on this part and after paying a high rate of interest banks can provide you the need loan amount.
Clean track repayment option
A clean track record of repayment of existing loans can be a good option which banks might take into consideration while offering home loan to a person with a low credit score.
Add a guarantor
It is another way to obtain a home loan with a poor credit score. If a person or a relative with a good financial backing becomes your guarantor, then banks can easily offer you the desired amount of Home loan.