Introduction
As we know, purchasing a home is an exciting moment in everyone’s life. And your CIBIL score can make or break your goal.
While you’re getting ready to buy a house, there are a few things you should know. One of the most critical things to consider is your credit score.
Credit scores (CIBIL Score) are used to assess a person’s capacity to repay a loan.
It’s a three-digit number calculated by the country’s credit bureaus using consumer data from customers and lenders.
It is determined using parameters like loan payback history, the length of the current credit, and so on.
Typically, the credit score varies from 300 to 900 points.
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Let’s see how your credit score affects the home-buying process?
Banks will check your credit score when you apply for a home loan to see if you are a trustworthy borrower. This means banks will check whether you have enough liquidity to cover both the interest and principal components of your bank loan.
A credit score in the range of 750 to 850 is regarded as good and can provide you with various benefits, such as faster loan approvals, lower interest rates, and so on.
So, before you apply for a home loan, make sure you have a decent credit score. Your credit rating will increase if you pay your credit card bills and EMI’s on time.
Let us now look at the primary factors that will influence your credit score.
Loan approval – How CIBIL Score Impact the process!
First and foremost is your loan approval. Your credit score will play a primary role in getting a loan approved.
A credit score of 620 to 650 is usually required to obtain a home loan. If your score isn’t up to par, you should contact your bank to find out how you can improve it.
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Loan amount
If you have a low credit score, the loan amount you receive will almost certainly be less than the amount you sought.
For example, if you need a Rs. 35 lakh house loan and your credit score is not up to the mark as per the bank official, then they may offer you a lesser amount/ loan.
To overcome this problem, you should strive for a higher credit score in order to be eligible for a larger loan amount and lower interest rate.
Interest rate
Another criterion that is influenced by your credit score is the loan interest rate.
As a thumb rule, higher the credit score, lower will be the interest rate offered. Here couple of bps (basic points) can make a tremendous impact on your interest outflow.
Down payment
As we have seen, your lower credit score will compel the bank to sanction a lesser amount than you demanded or expected.
This is done to ensure that the buyer is serious about repaying the loan. For example, if the standard down payment is 10% of the total amount, the lender may now require you to pay 20%.
Consequently, a lower credit score may necessitate a larger down payment when purchasing a home. This may put you into a huge problem because most home buyers plan for a maximum of 20% self-contribution and expect banks to sanction the remaining 80% as a loan.
Conclusion
We hope you now have a better understanding of credit scores and their impact on home buying.
As previously stated, a higher credit score will result in more appealing loan offers, lower interest rates, longer repayment timelines, larger loan amounts, and so on.
If your credit score is low, try to make all payments on time for the next few months to raise it.
It’s also critical to keep a close eye on your score to see if it’s improving or not.
So, if you want to buy a house, make sure you have a good credit payment history. You can check your credit score using online portals or seek advice from a financial expert.
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