A mortgage is usually the single largest financial responsibility one will have over their lifetime. For most, seeking a mortgage comes as a truism when the need to seek one arises, while for others, especially those with a low CIBIL score, getting approved can be much of a struggle. So, if you’re one of the latter, worry less because here’s what you need to understand. There are options, but it’s essential to know how a poor CIBIL score affects the chances of a mortgage and what can be done to improve that prospect.
What is CIBIL and Why Does it Matter?
The Credit Information Bureau (India) Limited, commonly referred to as CIBIL, is one of the credit rating agencies in India that analyses the creditworthiness of a person. Your CIBIL score ranges from 300 to 900 and depicts your credit history and the chances you have for repaying the borrowed funds. A good score suggests a reliable borrower; whereas a low CIBIL score might provide doubt regarding your financial management or indicate risk in providing the funds.
Impact of Low CIBIL Score on Your Mortgage:
- This score by CIBIL, therefore, holds much importance during the loan application process, where lenders strictly consider your ability to repay the loan. A low CIBIL score might indicate financial instability, and the lender may perceive you as a riskier borrower. Consequently, you may face the following difficulties:
Higher Interest Rates:
- A low CIBIL score will have the lender approving your mortgage but at a higher interest rate. The lender considers lending to you as relatively riskier as compared to a person with a good credit score. The higher is the interest rate, the higher will be your payment throughout the life of your loan.
Lower Loan Amounts:
- The lender may lower the sum he may lend you based on your CIBIL score. He fears that with a low credit score, you might not be able to repay a large loan.
Harsher Terms and Conditions:
- Lenders can demand extra conditions on your mortgage to hedge the risks involved. For example, they can demand more down payment or additional collateral.
Sometimes, a low CIBIL score may lead to the outright rejection of your mortgage application. While some banks and financial institutions just do not grant loans when a particular threshold is reached, falling short of it in terms of score may make a difference in approval.
How to Increase the Chances for Getting a Mortgage with a Low CIBIL Score
While a low CIBIL score may certainly pose its own challenges, there are indeed ways you can work around it to ensure a mortgage:
Verify and Improve Your CIBIL Score:
- To approach a lender seeking a mortgage, it is of utmost importance that you verify the report showing your CIBIL score. Check the errors and inaccuracies, and get them rectified so as to improve the score if it reflects missed payments or excess utilization on the credit card.
Opt for a Larger Down Payment:
- A larger down payment can reduce the lender’s risk, which might make them more willing to approve your mortgage application. It can also increase your chances of getting favorable terms, even with a low CIBIL score.
Consider a Co-Applicant:
- If your CIBIL score is low, applying for a mortgage with a co-applicant who has a strong credit history can boost your chances of approval. Lenders will assess the combined financial profile of both applicants, which may improve your overall creditworthiness.
Find the lender that specializes in low CIBIL mortgages. Some lenders offer specialty mortgage products for those with lower CIBIL scores, even though these terms might not be as handsome as those offered to those with higher CIBIL scores, this is still a good alternative in a bad situation.
Provide more documents: If your low CIBIL score is temporary due to bad times, supplying extra documents of income, employment stability, and your assets could get you loans even with low credit scores.
Alternative Financing Options
If you can’t get a regular mortgage through a traditional lender, you may wish to explore alternative financing options.
Subprime Mortgages:
- These are special types of mortgages provided for the bad credit people. Though it might attract more interest, still they provide the access to funds.
Government Initiatives:
- There are a lot of schemes for low-credit-scoring individuals from the government side, too, such as the Pradhan Mantri Awas Yojana in India. Such schemes will provide lesser interest rates and reduced eligibility criteria.
Peer-to-Peer Lending:
- Through the P2P lending site, borrowers are directly connected with individual lenders. These platforms can be flexible with their lending criteria, giving individuals an alternate source with a low CIBIL score.
Conclusion
It may sound difficult to get a mortgage when your CIBIL score is low, but it’s not impossible. One needs to know the difficulties involved, improve his credit score, and explore all possible options available. In doing so, a person will definitely be able to own a home even with a poor credit history. Never forget to compare various deals offered in mortgages, and if possible, seek expert financial advice that can help him in this respect.
FAQs
1. Can I obtain a mortgage despite a low CIBIL score?
Yes. For that, you’ll have to pay higher interest rates and presumably have stricter terms.
2. What is a low CIBIL score?
Generally, below 650 is considered low. Below 600, that’s a significant challenge.
3. How to improve the CIBIL score?
Reduce existing debts, reduce credit card balances, and make all payments on time.
4. Would having a co-applicant help?
Yes, if your co-applicant has a better CIBIL score, that will enhance the chances of approval.
5. Are there any government schemes for people with low CIBIL scores?
Yes, schemes like PMAY have relaxed criteria and interest rates for those who qualify.