Do you want to buy a house?
If you answered yes, there are a few things you should think about before buying a new home!
The first is your budget, location, interest rate on the home loan, the number of years to repay the loan, the amount to be withdrawn from the bank, and, most importantly, your credit score. When these factors are added together, the credit score receives 50% of the weight as it determines a user’s creditworthiness.
For better or for worse, your credit score will determine whether or not you will be granted a loan and under what terms and conditions.
So, if you’re struggling to figure out the ideal credit score for a home loan, continue reading the blog. Also, learn the five most important things to do before applying for a home loan.
What is the Ideal Credit Score for a mortgage?
The ideal credit score for a home loan is 750 or more. A good credit score increases the chances of a faster home loan approval process. However, a good credit score is not the only factor behind the loan approval process. It also depends on the terms and conditions of the lender and eligibility criteria. Eligible borrowers are entitled to a lower interest rate on the loan amount they obtain, as well as other benefits.
What Does Your Credit Score Say About Your Home Loan Eligibility?
The table below distinguishes between credit score ranges and what they indicate about home loan eligibility.
|Credit score||Health Credit Score|
|300-549||Bad credit score
Describes irregular payment behavior
Provides an overview of missed/delayed credit payments
Highlights higher credit dependence
Opportunity turns to be absent
|550-649||Fair credit score
Shows irresponsible credit payment behavior
Indicates multiple borrower’s rigorous investigation efforts (if any)
|650-749||Good credit score
Describes responsible behavior towards credit or loan EMI payments
Eligible for credit and loans
Low risk of turning into defaulters
A reasonable rate of interest is charged on the loan, but the borrower will not get a higher credit limit
|750-900||Excellent credit score
Little or no chance of turning into a defaulter
Highlight responsible credit payment behavior
Does not show default payments made
Error-free credit reports
Lower interest rates
Higher negotiating power
Why is Credit Score Important for Home Loans?
Before processing loan applications, banks and financial institutions always look at the borrower’s credit score and payment history.
CIBIL collects and organizes all information about users’ credit history and makes it available to banks and financial institutions. Data is collected through banks and financial institutions. CIBIL then processes that information on a monthly basis and generates a detailed credit information report (CIR) of the user’s credit history.
Banks and financial institutions then use the CIR to determine whether or not the borrower’s home loan application is approved and what the interest rate will be. A good credit score and CIR report can help borrowers get the desired loan amount (80 percent of the actual loan amount).
Since the credit score indicates a user’s creditworthiness, it becomes the most important factor considered for a home loan.
How to Improve Credit Score for Home Loans?
Follow these guidelines to improve your credit score for a home loan:
- Check your credit report twice a year
- If there’s an error or problem with your credit report, file a dispute. Finish the comment as soon as possible
- Refrain from making a lot of difficult questions
- Don’t leave unpaid balance
- Set reminders for loan EMI and credit card payments
- Do not apply for a new loan immediately after the rejection of your previous loan application
- Always pay your credit card bill on time
- Maintain a clean, disciplined and strict payment history
- Limit your credit utilization ratio to 30%
- Submit the check to the bank or financial institution a few days before the due date
*If you follow the best practices listed above, your credit score will improve over time.
Is it possible to get a home loan if I have a low credit score?
A person with a poor credit score can still get a home loan but at a higher interest rate. Banks, lenders, and financial institutions often charge higher interest rates to low-credit applicants.
The reason for this is that the credit score determines the home loan application process as it is one of the most important factors considered by banks, lenders and financial institutions.
What Documents Are Required for Home Loan Eligibility?
To be eligible for a home loan, the applicant must submit the following documents. The document may differ from lender to lender, but it is the standard document used to verify the eligibility of a home loan.
- Applicant agrees to withdraw their CIBIL report
- Self-proven KYC documents
- bank statement
- Salary slip of the previous three months
- Return on IT investment over the last four years
- Property papers
Pay attention to these 5 things when applying for a mortgage
Before applying for a mortgage, consider the following:
- Check your credit score
- Maintain a healthy balance of secured and unsecured loans
- Compare multiple banks based on home loan interest rates, benefits, EMI options, and other factors
- Refrain from applying for multiple home loans at the same time
What is a good credit score for a home loan?
A credit score of 750 or higher is considered good for a home loan.
Is it possible to get a home loan with a credit score of 700?
A credit score of less than 750 makes the mortgage application process more difficult and expensive (in terms of interest rates). Therefore, before applying for a home loan, you should first increase a person’s credit score.
Can I get a home loan with a credit score of 500?
Lenders, banks and financial institutions often consider a credit score of over 750 to be ideal for making home loans. A credit score of 500 is included in the bad credit category. As a result, it is important to improve one’s credit score before applying for a home loan.
Why is a credit score important in the home loan process?
Credit score is one of the most important factors determining a user’s creditworthiness, and is always taken into account by banks, financial institutions and lenders. A good credit score increases the chances of getting a home loan, whereas a bad credit score makes the home loan process very difficult, if not impossible.