If you are planning to take a loan for buying a house, then you need to understand once important concept. Your ‘past’ as well as your expected ‘future’ plays a big role in deciding many things about your home loan – like the loan amount, loan tenure, interest rate, etc.
This might seem a little odd to hear first, but is perfectly logical.
Two key factors that affect lender’s decision to approve or reject your home loan application are:
- Credit history – how you have serviced loans in past
- Future loan repayment capacity – how you ‘might’ service your loan in future
So clearly, it’s not just your past but also your future that together effects your home loan application today.
Before lending, lenders would obviously want to know whether the applicant has regularly serviced his loans on time or not. For this, they will check your loan credit history. If you have a good credit score then it is assumed that you will be regular in loan repayments in future too. But if the score is not good, then you might see the lender rejecting your application as a poor score indicates risk of loan non-repayment in future.
Now even if you have a good credit history and are expected to repay the loan properly in future, it is imperative to assess whether your current and future income would support that loan EMI burden or not. So to judge a borrower’s ability to meet future EMI obligations, lenders check his/her stability of income and its adequateness given other expenses and EMI commitments.
So that is how lenders sift through your past and look into the crystal ball to assess your future when deciding on your home loan application. As a future borrower, it therefore makes sense to start building a good credit history for yourself from today itself. This will help you in future when you apply for any loans.