How Do You Get a Home Loan With a Low CIBIL Score?

A credit score is a single figure that holds the potential to cost or save the borrower or applicant a lot of money while applying for a loan. They can also gain lower interest rates if their profile has a good credit score. A low CIBIL score is often a deterrent for many lenders to provide a home loan. But, there are many ways to avail of a home loan with a lower CIBIL score. Besides the CIBIL score, other parameters, especially that of the property to be purchased, are also considered by the lenders while granting a loan.

A] What is a CIBIL score?

A CIBIL score is a widely accepted credit score in India granted to individuals and businesses, as it represents the creditworthiness of the loan applicant. While granting a home loan, the lenders often consider the credit score to be the most important factor for accessing the eligibility of the applicant. It provides an assurance to the lenders that the applicant is capable of repaying the home loan.

This score is a number that ranges between 300 and 900, calculated based on the history of loans availed and repaid by the applicant. A minimum CIBIL score of 700-750 is needed for a bank to sanction a loan. Many banks also have their own requirement of minimum CIBIL score for home loans. However, at least 700 is required by the majority of the banks in India.

An applicant with a CIBIL score in the range of 700-750 and above is considered the least risky. Simply put, the higher the CIBIL score, the higher the chances of the applicant getting a home loan.

Also Read: The Whole Truth about Credit Scores for Home loans

B] Can you get a home loan with a low CIBIL score?

The credit score is expected to have a huge impact on the eligibility of an applicant. Housing finance companies offer credit to borrowers with lower credit scores as they have better research and credit assessment capabilities for the same. However, these lending institutions usually charge higher interest rates on loans to applicants with a lower score to compensate for the higher risk element.

An applicant with a poor credit score can also opt for a reduced repayment period or a co-applicant. When the applicant’s total income along with the credit score is good, it assures the financial institution about the ability of the applicant to repay the principal loan amount as well as the interest.

C] How do you get a home loan with a low CIBIL score?

Improving the CIBIL score to an acceptable level is considered one of the best ways of getting a home loan application reviewed. To improve your CIBIL score, you can:

1.Raising a credit repair request:

An applicant can create an account on the CIBIL website and submit a request to review past repayment records in case of incorrect information being displayed. Requests can also be submitted in case the applicant has some sort of dispute with the lender concerning annual fees and other charges.

2. Clearing the outstanding debt:

This requires the applicant to make the payment of all their debt accounts in full and not through a settlement amount. Debt settlement happens only when the borrower is unable to repay the credit availed. Such accounts appear as ‘settled’ in credit reports, thus lowering the score considerably.

3.Regularising the repayment record:

This requires the applicant to pay their EMIs and credit card dues before the due date so that the past-payment repayment record does not show any irregularities. Practising this method of repayment for a duration of 12 months will help in reflecting a positive record in the credit report and score.

4.Not applying for too many loans:

When one bank rejects a credit card or personal loan, the applicants often apply to other banks for the same. Repeatedly applying for a loan with different banks within a short time period is a bad practice. For applicants with low CIBIL scores, it is always advised to wait for a duration of 12 months before applying for a loan or credit card. While waiting for a year, they can regularly repay their existing loans (if any), thereby increasing their CIBIL score to a great extent.

Also Read: 9 Different Types of Home Loans You Should Know About

D] Tips to Improve your CIBIL Score

Buying a house is always a strategic, financial, as well as emotional decision for any individual. However, getting funding for such a colossal investment through  savings and investments is a challenging task.  Availing of a  home loan in Mumbai can become a critical task for people looking to make a purchase. Whether a bank or financial institution approves the housing loan particularly depends on the creditworthiness of the applicant or the borrower which is reflected by the CIBIL score.

If the applicant has an average CIBIL score, here are top tips that will assist them in getting a home loan sanctioned:

• It is important to understand the process. The credit score is always based on factors that assist in determining the ability of the applicant to repay the loan.
• If the credit score and income records are not ideal, the applicant can apply for the loan with someone, i.e. they can add a co-applicant to the loan application.
• A secured personal loan is considered an excellent option if the applicant wants to improve their credit score to qualify for a mortgage.
• The applicant can improve their credit score by paying at least the minimum payment on their credit cards before the due date.
• It is advisable to apply for a loan with an existing lender. This helps in reducing the total turnaround time for the assessment of documents. It also provides borrowers with the chance to benefit from a long-term relationship with the institution.
• Opt for a higher down payment.
• Review the credit scores. One of the significant ways to increase the chances of getting a loan application reviewed is to inspect the credit score and understand the reasons for the lower score.

The critical aspect here is that the applicant needs to keep exploring alternatives from different financial institutions that offer home loans at different rates of interest to borrowers who have a low credit score.

Conclusion

It is important to understand that a financial institution assumes a significant amount of risk when offering a home loan as there are chances of default. However, to assess the repayment capabilities and creditworthiness of the borrower, the computation of the CIBIL score is a popular credit assessment tool.

However, a low CIBIL score cannot be considered the end of the world. The applicant can get their dream home even with a low CIBIL score if they follow the right approach. Hence it is always advisable to keep working towards improving the CIBIL score and opt for the loan later when the credit report starts looking better.

Need help securing a home loan? As loan agents in Mumbai, we can help you!