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How to Obtain a Home Loan Despite Having a Poor Credit Score

A poor credit score can be caused by a variety of factors, ranging from major to minor. Defaulting on a previous loan or simply forgetting to pay your credit card account can both lower your credit score significantly.

Payments are frequently delayed for legitimate reasons. Medical situations can put you in a financial bind, so you may decide to postpone your credit card payment. Or there could be an administrative error that causes your credit report to contain incorrect information, affecting your credit score without your knowledge.

Your CIBIL score must be over 750 points in order for the bank loan process to go smoothly. According to CIBIL statistics, 79 percent of loan applications with a credit score of 750 or higher get granted. This crucial score is used by the bank to measure a person’s ability to repay a loan. It also has an impact on your interest rate: the better your credit score, the better your interest rate.

Furthermore, if you’re thinking about joint ownership, the co-credit owner’s score will need to be excellent as well for a smooth loan acceptance. However, with so many things that may go wrong, achieving that perfect score isn’t simple.

Pursue gold

According to the RBI, loans of up to 75% of the value of gold jewelry can be given out, which would be ideal in this situation. With no further paperwork required, pledging your gold jewelry ensures easy and speedy cash. The funds can be used to increase your down payment, lowering the amount of money you’ll need to borrow and making it easier to get approved.

Achieve a low FOIR

One of the things you must accept if you have a low credit score is that you may not be able to obtain the loan amount you require. The Fixed Obligations to Income Ratio (FOIR) is a criterion used by banks to assess a borrower’s loan eligibility.

It considers your present financial responsibilities, such as EMIs from other loans and credit card payments, but ignores fixed deductions such as provident fund, taxes, and insurance. The typical FOIR rate for a home loan set by a bank can range from 45 percent to 50 percent, though this can vary from bank to bank. Banks can use FOIR to determine your eligibility and still issue you a home loan, but for a reduced amount.

Select dependable guarantors

If you’re applying for a joint loan, you can make up for your bad credit by ensuring that the individual co-signing the loan with you has a good credit score. Another alternative is to enlist the help of a third party with a strong credit score as a guarantor, albeit this may be difficult due to the risks to the individual involved.

Increase the amount of money you put down

Increasing the size of your down payment is one of the best strategies to improve your chances of getting a loan approved. This lowers your Loan-to-Value (LTV) ratio, increasing your chances of getting a loan. The LTV is defined as the ratio of the loan to the property’s worth, and it can range from 75% to 85% of the asset’s value. A high LTV indicates a larger loan amount and, as a result, a smaller down payment. When your credit score is low, saving up a greater sum for a down payment can be the best option.

Use other financial track records to your advantage

If you’ve been making on-time payments on previous loans like credit card, you can use them to your benefit as proof of good financial standing. If banks are confident in your capacity to make timely payments, they may offer you lower interest rates or a larger loan amount.

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