6 Ways to Get a Home Loan with a Poor Credit Score
The most important factor in determining the Home Loan eligibility for a particular amount is the Credit/Cibil Score. It not only influences the decision of the Bank or the Home Loan provider in terms of the Home Loan Amount to be sanctioned but also determines if you are at all eligible for the Home Loan. Despite such an important role, it is not impossible to get a Home Loan with a poor Credit Score.
There are countless cases when the Credit Score gets impacted by things that are easy to miss. Such as Credit Cards bills. They accumulate quickly with relatively larger interest rates. In such a case, if your Credit Score has already faced the heat, and the banks or the lenders are refusing you loans because of this, there are certain measures that can be taken:
1. Guarantor: A way to obtain the home loan with a relatively poor credit score is to include a third party/person as a personal guarantor. This person must have a good financial standing.
2. Lower FOIR: You can opt for a lower FOIR or Fixed Obligations to Income Ratio. It measures your monthly total amount of fixed obligations (this includes EMIs of the prospective home loan) as a ratio of the monthly income. Lenders fix this ratio. If your bank is refusing a high amount home loan, you have the choice to opt for lower FOIR, essentially — a lower loan amount.
3. Interim Security: Banks issue Home Loans on the basis of the prospective property. It works as a security. If you have a poor credit score, you can add a secondary security called Interim Security.
4. Lesser LTV: Another ratio used by the banks is the Loan to Value (LTV). It calculates the loan amount as a ratio to the total value of the property. Banks aren’t allowed to lend more than 85% of the LTV. However, you can opt for a lesser LTV such as 65% or 70% and increase your own contribution instead.
5. Maintaining Clean Track of Repayment: If you have a good record of repayment on past or existing loans, the bank might consider granting you the Home Loan, despite a poor credit score. Some banks might offer you a higher LTV on loans if your track record demonstrates a healthy behaviour.
6. Compromising the Rate or Tenure: If the banks are refusing to grant you a home loan, you can negotiate on terms of higher interest rate to be paid or for a longer Home Loan Tenure. The Home Loan will cost you more at the end, but you will be able to procure the Loan.
The above-mentioned techniques help you contain the crisis of your poor credit score. Maintaining it is important. In any case, except for the Clean Track of Repayment method, almost all the options have drawbacks for the borrower in some way. Option for lower LTV or FOIR will lower the loan amount or if your compromise on Rate and Tenure, the cost of loan increases.
These are a lifesaver and last resort techniques when banks refuse to grant you the loan. The ideal way will be to maintain a good credit score from the beginning.