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Last Updated : Sep 05, 2019 09:18 AM IST | Source: Moneycontrol.com

Applying for a home loan? Avoid these mis-steps

Lenders prefer customers with stable or predictable cashflows

Nikhil Walavalkar @nikhilmw

For many youngsters and more so with millennials today, jumping jobs is a frequent occurrence. They assume that career growth, better roles and more money, all come with changing companies.

Of course, jumping jobs is not necessarily a wrong or a bad thing to do. However, if you want to take on a large debt burden – a home loan for example – then you should exercise prudence in changing companies and jobs, as such moves are frowned upon by lenders.

Restrict job switches

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Most lenders prefer clients who have been steady employees. Job jumps may be inevitable in today’s era. But banks prefer people who have spent at least two years with their existing employer. If you have just changed companies, the lender may go slow on your application. For starters, banks would demand three months’ salary slips and six months’ bank statement. If you plan to buy an apartment by taking a home loan, avoid jumping jobs just ahead of submitting your application—more so if you plan join a small firm or a start-up. Lenders prefer employees of large corporations over smaller companies, other factors remaining the same.

Entrepreneurs less welcome

Lenders prefer customers with stable or predictable cashflows over those with erratic incomes. The salaried are favoured over the self-employed. You may have done well in your career as an employee. But if you have just started out on your own, the bank would be inclined to lend only if are an established self-employed person. The risk changes drastically for the lender when you leave your job to start a business. When you apply just after starting a business, not all lenders will be keen to give you a home loan.

Ensure cheques are honoured

Cheque bouncing for minor reasons such as name or signature mismatch may be seen as a sign of being casual with your money matters. When a cheque bounces, it may be due to your oversight or due to more serious reasons such as insufficient funds.

“Cheque bouncing for lack of funds is a serious issue. The loan approving authorities may deny you a home loan if the cheque you issued for payment of home loan charges bounces for lack of sufficient funds,” says Sukanya Kumar, founder and director of RetailLending.com.

Though there is no written rule to that effect, for a credit manager, a cheque bounce is a case of gross mismanagement of finances.

No skipping of EMIs

Many a time, after job switches, the salary account changes. But you have loans getting serviced from the old bank account. Sometimes, you may forget to transfer funds from your salary account to this old account. If an equated monthly instalment (EMI) is skipped for any reason, the credit manager may view this seriously and deny you a loan. If you are lucky, the lender may give you an opportunity to explain the reasons behind such a slippage. But not all may be that lucky.

Pay credit card bills on time

Credit card bills represent short-term liabilities. If a home loan applicant is unable to repay his credit card bill, it is a sign of inability to service debt, more so in the case of large ones such as a home loan.

“You should also be prudent with your credit card usage in the months before you apply for your home loan. Too much use of credit card shows credit hungry behaviour and may work against you,” says Sukanya.

While processing home loan applications, lenders consider the credit score, now offered by many bureaus. A credit score generally ranges between 300 and 900 and a number in excess of 750 is considered good. Regular repayment of loans help you build a credit score. Failure to service loans brings the figure down.

“One off failures on EMI repayments have a mild impact on the credit score, but skipping an EMI often can bring down the credit score drastically,” says Ranjit Punja, founder-director of CreditMantri.com, a credit counselling firm.

Late payments and higher utilisation of credit limits on credit cards also pull down your credit score.

A low credit score may mean that you end up paying a higher rate of interest compared to a borrower with high credit score, other factors remaining the same. Some lenders simply deny loans to borrowers with credit score below a certain level. Always service your loans on time to ensure good credit score.

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First Published on Sep 5, 2019 09:18 am
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