How to Get a Housing Loan with Bad Credit

 Anamika Verma
  Feb 01, 2018

Having a good credit score is indispensible when it comes to getting a Housing Loan. In fact, your credit score also helps to determine the tenor of the loan and the interest rate. But, if you have a poor credit score, there are still ways to get a Housing Loan to buy your dream property. These six measures will help you overcome a low score and get a Housing Loan on favourable terms.

Lower the Fixed Obligations to Income Ratio (FOIR):

The Fixed Obligations to Income Ratio or FOIR is the total fixed financial obligation you have every month, which includes other EMI payments, as a ratio to your total monthly income. When you have a poor credit score and a large part of your income is already being used to meet existing financial obligations, lenders assume you will find it difficult to service an additional loan. To avoid this from affecting your eligibility for a Housing Loan, prepay a part of your existing loans. This will help your reduce the FOIR and enhance your eligibility for fresh loans. Bear in mind that this will only work if you have space cash or if you can liquidate an investment or any other fixed asset.

Lower the Loan to Value Ratio:

The Loan to Value ratio or LTV shows the percentage of the loan against the value of the property that you intend to buy with the help of a Housing Loan. The RBI dictates banks to maintain a LTV ratio between 80–85% of the value of the property. But, banks tend to set their own benchmarks. If you are a borrower with a low credit score, it is advisable to lower the LTV ratio by increasing your own contribution.

Seek Help from a Guarantor:

When you are sure that you are not going to be able to reduce your monthly obligations or the amount of the loan, nominate a guarantor to your loan application. This will help you improve your Housing Loan eligibility. A guarantor with a sound credit score can help build confidence with the lender. It gives them someone to hold responsible for repayment in case you are unable to service EMI payments. This can be challenging because if you default in meeting your financial obligation, it will reflect poorly on your guarantor’s credit score. So, if you’re considering this, it is best to approach your spouse, parents or siblings.

Add to the Collateral Amount:

The property being purchased acts as the collateral for a Housing Loan. But, if you are able to add additional collateral, it will go a long way in reassuring the lender if you have a poor credit score. In addition, pledging more collateral will also help you convince the bank to give you a higher loan amount, compared to what is considered acceptable at your credit level.

Demonstrate a Clean Repayment Track Record on Another Loan:

If you are able to show how you have repaid another loan in a timely manner, you can convince the bank that you will abide by your commitment of making EMI payments on time for this Home Loan. It will also help the lender approve a Housing Loan with higher LTV. Your past repayment performance also goes a long way in helping you negotiate better Housing Loan interest rates with your lender.

Accept a High Rate of Interest:

A Housing Loan applicant with a good credit score can dictate the Housing Loan interest rates as well as the tenor of the loan. But, if you have a poor credit history, you can negotiate with the lender and settle for a high Housing Loan interest rate. This, along with a long tenor, will give you access to funds albeit at a more expensive rate. As long as you have the income that supports your promise of timely repayment, securing a Home Loan on these terms will not be a challenge.

Don’t let bad credit stop you from buying the house of your dreams by keeping these pointers in mind. Start by checking your credit score before applying for a Housing Loan, as well find the ways to improve your credit score for an easy Home Loan to get benefited with low interest rate.

How to Get a Housing Loan with Bad Credit

Anamika Verma

Anamika Verma writes various types of tutorial related to finance and has a vast experience as a financial advisor. Her expertise on financial issues is well sought after and she is known for her in-depth knowledge topics such as loan, fund. house finance. She has written more than 1000 blogs on topics related to house, home, home improvement and much more. A post-graduate in finance management, Anamika loves to travel or cook in her free time.

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