GETTING HOME LOAN WITH POOR CREDIT SCORE
The credit/ CIBIL score of an individual is an important factor which is considered while applying for a home loan. It is one of the factors that decide the amount that you can borrow from the bank or from non banking organizations. It also decides whether you are eligible for taking the loan or not.
A person with bad or poor credit score is seen as a high risk by the banks and they hesitate in lending money to such customers. Thought it is important that you maintain a good credit score to increase the chances of your home loan approval, you can also get a home loan for your dream home in case you have a bad credit score. Here are a few points to consider when you apply for a home loan with bad credit score:
- Ask a person to act as a guarantor for you: If you have a bad credit score, you can ask other person to sign the form as a guarantor. If the person you choose as a guarantor has a good credit score, there are chances that the bank may give you a loan. You need to take care that this time you pay all the EMIs regularly and timely. Not doing so will worsen your credit score and also affect the credit score of the guarantor too in a bad way.
- Opt for lower FOIR (Fixed Obligations to Income Ratio): First of all it is important to understand what is FOIR. Suppose a person takes a loan from a bank and also has loans from other banks and is currently paying the EMIs of those loan. In this case, the bank makes sure that the total amount of EMIs and other obligations including all new loan EMIs too is not greater than 50% of the person’s salary. This means that the FOIR in this case is 50% of the total salary.
If your bank is hesitant to give you a loan because of bad credit score, you can agree to a lower FOIR.
- Record of existing regular repayments: If you took a loan in the past and you are currently paying the EMIs of that loan currently, you can show the good record of repayments with regular and timely payments of the EMI. Doing this makes the bank confident that you will be regular in paying the EMIs for the home loan they will give you.
- FHA(Federation Housing Administration) loans: Federation Housing Administration is an agency that provides security to the lenders that are associated with the FHA. The organizations associated with FHA readily agree to lend you money once you get approval from FHA.
- Agree to a shorter tenure or to pay a high interest rates: Usually people with good credit score get loans easily and that too with lower interest rates or longer tenure of the loan. But in case of bad credit score, agreeing to pay high interest rates or get a loan for a short tenure can help you get a loan.
- Choose lower LTV (Loan to Value): Usually banks agree to lend you a percentage of the value of the property that you want a loan for. Most of the banks give a loan of up to 80% to 85% of the property value, and if you have a good credit score, the bank also agrees to lend a bit more. But in case of having a bad credit score, you may have to opt for lower amount of loan like around 60% to 75%.
- Offer extra security: The property for which you are taking a loan is considered to be a security for the bank. If you do not repay the loan, the bank can sell that property to get back their funds. If you offer another security to the bank along with the property you are interested in buying, the bank will be more confident to lend you money.
- Find alternate lenders: There are organizations that lend money to people who have bad credit score. So before taking a loan, you should research if you can find such an organization.
- Get peer to peer loan: Peer-to-peer lending usually provide unsecured loans and in this system the lenders and the borrowers can directly contact each other. This direct matching with each other helps the lender in earning high interest rates and the borrower to get a loan at a lower interest rates as compared to the banks.
- Avoid organizations with Credit Scoring computers: Many organizations have credit scoring computers with them. All they have to do is input your file and the computer will check your credit score and other important factors related to you. Having a bad credit score means that your loan application is directly rejected even before a human checked your file. But if there is a person who could talk to you about the reason behind your bad credit score, there are chances that he finds the reason valid and approves your application.
These are some points that can help you get a home loan even with a bad credit score. Not only you will be able to have your own home because of this, but also you will have a chance to improve your credit score for future.