Are you in the loan market as a first-time house buyer? Identifying a suitable home and then finding the finances to purchase it can be a new and unfamiliar terrain for most people. Here are some tips on the kind of buyer credit that lenders look for when they review a home loan application. 

How can I qualify for a home loan as a first-time house buyer? What do lenders look for?

Lenders look at several factors regarding the buyer’s credit when determining whether to approve the housing loan application. They include the following indicators:

1. Your credit score: Typically, you need a minimum credit score of 750 for lenders to proceed with processing your application.

2. Your credit report: Lenders check your payment history over the years to see if you have a record of making payments on time and in full over all your past loans.

3. Employment status and salary: Lenders want to be assured that you will have a steady monthly income to pay off your EMIs over the entire loan period.

4. Clean title deed and complete documentation of the property: While this requirement is not related to your individual credit situation, banks want to ensure that there is no problem with the collateral (the home) in case you default on your loan.

As a first-time house buyer, what are the reasons my home loan application could be rejected?

There are three main reasons your loan application could be rejected.

1. Personal reasons: If the loan amount you are asking for is greater than what you can afford, lenders may be unwilling to take on the risk of default. Make sure that you choose a property that is not too expensive and that fits in with your income. Also if you have too many loans and EMI obligations, lenders might think that you will not be able to take on an additional loan repayment on your current income.

2. Credit reasons:  If you have a poor credit history and credit score, lenders might not want to take the risk of lending to you. If your loan application has been rejected earlier (any kind of loan - whether home or auto or personal loan), banks will see that as a warning signal that other lenders have not found you to be a suitable for a loan and they may reject your application again. There could also be external credit –related reasons for rejection - for example, your co-applicant could have a bad credit score, or you might be guarantor of a loan that has been defaulted on.

3. Legal reasons: If there is any problem with the legal documents pertaining to the property, the banks will be unwilling to approve your loan application.