Planning a Home Loan? Do These 7 Things First to Get Lower Interest Rates and Better Offers

Buying a home is a dream for many, and with attractive schemes from developers and special offers from banks, this may feel like the perfect time to take the leap. However, before you apply for a home loan, it’s crucial to strengthen your financial readiness. Proper preparation not only increases your chances of loan approval but can also help you secure a lower interest rate and better terms. Here are seven essential steps every homebuyer should follow before applying for a home loan.

1. Monitor Your Credit Score

Your credit score plays a key role in determining how lenders view you. A strong CIBIL score—ideally 750 or above—increases your chances of loan approval and helps you get better interest rates. Before applying for a home loan, make sure to:

• Check your credit report on the TransUnion CIBIL website

• Correct any errors that appear

• Clear outstanding dues that may lower your score

A good credit score shows lenders that you have a history of timely repayments and responsible financial behavior.

2. Pay Your Bills on Time

Late payments on EMIs, credit cards, or any other dues negatively affect your credit score. If you are planning to take a home loan soon, it’s essential to maintain a perfect repayment record. Timely payments reflect financial discipline, making you a more trustworthy borrower in the eyes of the bank.

3. Reduce Dependency on Credit

How much of your credit limit you use also impacts your credit profile. Ideally, you should use less than 50% of your total credit limit. Consistently high credit usage can signal financial stress, which may result in higher interest rates or even loan rejection. If needed, consider requesting a higher credit limit so that your usage ratio stays low.

4. Maintain a Healthy FOIR (Fixed Obligation to Income Ratio)

Before approving a home loan, banks assess your FOIR, which measures how much of your income is already committed toward EMIs. A lower FOIR—ideally below 40%—improves your chances of approval. To reduce your FOIR:

• Close old loans

• Make part-prepayments

• Avoid taking new credit before your home loan application

A balanced FOIR assures the bank that you have enough income left to manage a home loan EMI comfortably.

5. Avoid Applying for Loans at Multiple Banks at Once

Submitting loan applications to several banks at the same time triggers multiple hard inquiries, which can lower your credit score. Instead, thoroughly compare interest rates, terms, and government schemes beforehand. Apply only to banks that meet your requirements and where you stand a strong chance of approval. Consulting a financial advisor can also help simplify this process.

6. Show Income Stability

Banks prefer borrowers with stable income. For salaried individuals:

• At least six months of salary slips

• A minimum of one year of continuous employment

are usually required. Avoid switching jobs shortly before applying for a home loan, as it may indicate instability.

For self-employed individuals, lenders typically expect:

• Two years of consistent income proof

• Well-organized financial documents and bank statements

Stable income assures banks that you can manage long-term home loan EMIs without difficulty.

7. Add a Woman Co-Applicant

Many banks offer lower interest rates and special benefits to women borrowers. By adding a woman co-applicant—such as your wife, mother, or sister—you may qualify for reduced interest rates. Government schemes like PMAY also provide priority benefits to women. In several states, women enjoy up to 1% reduction in stamp duty, which further reduces home-buying costs.

Including a woman co-applicant not only increases loan eligibility but also helps secure a better deal overall.

Final Thoughts

A home loan is a long-term financial commitment, and proper preparation can significantly improve your chances of securing an affordable and convenient loan. By maintaining a strong credit profile, reducing outstanding obligations, ensuring income stability, and using available benefits wisely, you can unlock better offers and lower interest rates.

Taking these seven steps before applying ensures a smoother approval process and brings you closer to owning your dream home with greater financial confidence.