How does my credit score affect my home loan application?

A good credit score increases your chances of getting loans. Improving it is an important exercise for those seeking credit from lending institutions.

For a salaried or self-employed person with a regular income, it would seem like the easiest thing in the world would be to get a loan. One may need to borrow from the bank or a financial institution from time to time, and to fund a variety of personal and professional initiatives. With all lending institutions laying out the red carpet for customers looking for loans, it would appear that one merely needs to fill out the application form for the loan request to be processed.

But things are never as easy as this. There is an important factor known as the ‘credit score’ that is inherently at the root of all loan approvals. Even when one has the financial wherewithal to make repayments on a home or a business loan, lending institutions might reject the loan application or sanction far less funds. The applicant’s credit score is often to blame for this.

What is a credit score? It is a number derived based on a number of factors in a person’s credit history. These factors include the applicant’s age, the type of credit taken in the past, repayment history and patterns, if any new credit is being applied for, length of credit and total credit repaid. These determine the applicant’s credit score, which lending institutions examine in detail before deciding on approving the loan request. Hence, when you apply for a home loan, the lender will immediately pull out your credit score before proceeding further.

What weakens the credit score? A poor credit history is detrimental to your chances of securing a loan. Unpaid debts on loans and credit cards, erratic repayment patterns, property seizure in response to unpaid debts, etc. can all weaken your credit score. An applicant with a poor credit score is known as a ‘credit risk’ and lenders are cautious about extending credit to them. If the loan application is approved, one might be sanctioned a lower loan amount despite a high income, and at a higher rate of interest.

Can you improve your credit score? Remember that the credit score comes into play before the loan application is processed further, and it is often the starting point of the loan application process. Hence, it is important to clean up your credit history before you apply for a home loan. You can do this by repaying older loans before their tenure is up. Applicants who pre-pay loans are considered low risk individuals. Also take care to repay all credit card bills or cancel those cards that you no longer use – they are also counted in your credit history. Not defaulting on older loans is a key factor – lenders study repayment patterns and are satisfied when repayments are regular. The lender will also check if the applicant has any cheating or forgery cases lodged against him, or if there have been incidents of improper property papers being submitted, or if the documents submitted for the current loan request are genuine or not.

If you are applying for a home loan for the first time, the lending institution will examine if you have any owned assets that you can use as collateral, and what the quality of these assets is.

Are You Looking to Buy a House in a Tier 3 City?

Did you know that the 2013 Planning Commission report said that by 2031, 30%-40% of the urban population will be living in small or medium-sized towns? The rapid development spreading to tier 2 and tier 3 cities has led to a spike in real estate prices. People living in tier-3 cities in India may still find it difficult to afford a house if they fall in the middle or low income group. To solve their specific needs, specialized products are needed, such as a rural housing loan.

Qualities of Home Loan for the Rural Populace

• Target Customer Base: This type of financing is suitable for people residing away from major urban centers. The customers are generally agriculturists, blue collar workers, agriculture related workers, self-employed people and salaried individuals from remote areas. 
• Loan Amount: Since the need for financing is associated with real estate purchase in tier-3 cities, the amount offered as loan is governed by the prices applicable to the area. Since the market rates of properties are much lower here than the in tier 1 and 2 cities, the amount extended as loan is also not very high. Generally, rural housing loans range from Rs 50,000 to Rs 10 lakhs. This figure is within the affordability range of a majority of the people in the area.
• Usage: The amount raised through a rural housing loan can be used for a variety of purposes. The borrower is not only free to utilize the money for purchasing a property in the area but can get other important things done, like reconstructing, repairing and home improvement.
• Loan to Value Ratio: The value you receive on raising these loans generally hover around 70% to 80%, depending on whether the house is fully ready for purchase or whether the loan is obtained for the completion of construction undertaken for home improvement.
• Eligibility: Different banks require different types of checks before they agree to grant a loan to an individual. The criteria may be judged according to the gross annual income of the household (which is usually around Rs 1,20,000), surrogate income proofs and inquires carried out by the lending institution on the field.

Rural housing loans are created specifically to solve the problems of a specific target customer base. This type of product will help people from small towns acquire valuable long term assets, without having to shell out a majority of their savings or being burdened by an unaffordable repayment amount.

How can I get a loan against my shares online?

Taking a loan against your shares helps individuals and businesses stay aligned with financial goals and manage a cash crisis better.

Every individual or business is in need of periodic funding to improve cash flows and also align with financial goals better. Sticking to a financial plan is easier when reserves are ample. However, this may necessitate the borrowing of funds from banks or financial institutions from time to time.

In this context, it is pertinent to note the important role that shares play in offering immediate liquidity for one’s needs. Holding shares and stocks is useful for both individual investors and companies. Based on the quality of the shares one owns, a bank or financial institutions may extend credit to the business – this is known as a ‘loan against shares’.

Why take loan against shares?

The loan against securities is a term loan granted by financial institutions and banks against the equity shares you or your business owns. You need not disrupt your long term investment plan by liquidating immovable assets such as property; instead, you can avail of a more financially flexible option of taking a loan against your equity shares. It is a faster and more cost-effective solution (at least 100 to 200 basis points lower on interest cost) and saves your other securities, such as gold and property, from coming into the ambit of loans.

Businesses with concrete expansion plans, or those looking for funding to acquire new processes, equipment or skilled manpower to upscale their operations can consider the loan against shares option. It can also be put to use by salaried individuals for such personal requirements as financing children’s higher education or paying for children’s marriage, or even making the payments on a second home.

When you take a loan against shares, you need not sell your shares or give up the bonuses and other accruements on them. The shares are simply pledged to the financial institution or bank for the loan tenure. They are not owned by the lending institution in any form.

How to apply for it

You can apply for a loan against shares online by entering your details on the lender’s website and asking for a call back to know more about the product and its benefits. If you have the requisite information already, you can proceed to fill out the lender’s application form online and submit it to the nearest branch.

Meanwhile, you must dematerialise your shares. You can ask the lender for a list of approved shares and securities: no other securities will be entertained. Peruse the lender’s loan brochure thoroughly so that you are conversant with service charges, interest rates, and other fees. Also get your paperwork in order: the lender will ask to see bank statements for at least one year, income proof, balance sheets, profit and loss statements (in case of business loans), details of other loans taken, etc. 

Once the lender approves your documentation and shares, a current account will be opened in the business’s or individual’s name. You can collect the funds from here, and also pay your loan EMIs to this account.

3 major benefits of zero balance savings accounts

There are some noteworthy benefits for opening and operating a zero balance savings account. We examine what these are.

You work hard all your life to provide security and every material comfort to your family. Early on in your working life, you realise that to attain security and financial freedom for the future, you must periodically save money and make investments.

The money you save can help you in a range of situations. Your savings corpus can help you when there is an emergency medical procedure that you or a family member needs to undergo. It can pay for your children’s future education. It can help you in setting up a retirement fund for yourself and your partner. It can also help you bolster the savings of your retired parents so that they may live comfortably in their senior years.

For this, the easiest way to park your surplus funds is to deposit them in your savings account. However, instead of using your usual account, you could consider opening a zero balance savings account. The following are three major advantages of this type of account:

1. You do not need to check if the account balance is maintained. The hassle with other savings bank accounts is that you have to constantly maintain the minimum balance as stipulated by the bank. Failing to maintain the account balance invites a penalty. As opposed to this, the zero balance savings account need not be monitored for account balance at all. Since there is no minimum balance stipulation, you need not worry about penalties and fees being levied every quarter.
2. You can use it as an expense account. As mentioned above, most savings bank accounts put you in a spot when your account balance dips below a minimum balance. Hence, opening a zero balance savings account is a good option if you use it as an expense account. You can lock your savings in another savings account, while using the no balance account to pay bills for maintenance, utilities, groceries, food, travel, entertainment, etc. There is no limit on the maximum number of transactions using this account. With this step, you create an expense account that is separate from the account that stores your valuable savings.
3. You get access to all banking services. As the holder of a zero balance savings account, you get a debit card and pass book from the bank. You also get access to Internet banking, email or paper bank statements and SMS and/or email alerts every time you make a transaction. Also, the bank pays interest on the residual funds in the account.