What CIBIL Score is Needed to Buy a House in India?


Apr 22, 2024 #Finance, #Loan

Buying a home is a big-ticket investment as people sometimes spend their life’s earnings to buy a home. Considering the scenario of rising inflation and a growing real estate market, the cost of owning a home has increased manifold. And, this is why most home buyers in India resort to taking a home loan to fund their home-buying needs. But, like other types of loans, the home loan also has an eligibility criterion particularly related to the CIBIL score. Since a CIBIL score signifies the credit taking capability of an individual, it is necessary the home loan applicant has a minimum CIBIL score to get the home loan. Let’s find out what minimum CIBIL score is needed to avail of a home loan.

What is a home loan?

A home loan is a kind of credit that is taken by individuals with the purpose of purchasing a residential property. As compared to other types of loans like a personal loan, consumer durable loans, and others, a home loan comes at an attractive and affordable interest rate. This is quite understandable as the bought property works as collateral against the owed amount. So, if the borrower fails to repay the amount on time, the lender can confiscate the property and recover the remaining amount.

A home loan is not just an option but a necessity for middle-class people of India who carry a dream of having their own home in a good location. This type of loan gives them a high purchasing power that is much needed to buy a home due to its high cost. In addition, a home also allows the borrower to enjoy several other benefits particularly related to income tax. So, taking a home loan in India is a win-win situation for the borrowers due to its numerous benefits.

What is the CIBIL Score?

A CIBIL is a 3-digit numeric code that ranges between 300 and 900. This number signifies a person’s creditworthiness. The closer the number is to 900, the better his credibility in terms of taking credit. In general, a CIBIL score of 750 and above is considered good and most banks and financial institutions offer credit services to people with this CIBIL score.

The CIBIL score of a person is calculated on the basis of the person’s past loans, active loans, past payment records, credit inquiries, total outstanding, etc.

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Minimum CIBIL Required To Get A Home Loan

When it comes to finding the minimum CIBIL that a person should have to get a home loan, the result tends to vary from one lender to another. However, most lenders easily approve the home loan application of a person with a CIBIL score of 750 and above. Some banks even accept applications of home loans from people having a CIBIL score of 700. It is important to note that even if your home application gets approved with a low CIBIL score, the chargeable interest rates would be higher as compared to people with a higher CIBIL score. This is because lenders perceive some kind of risk to their given amount to people having low CIBIL scores.

Good CIBIL Score For A Home Loan

According to home loan experts, a minimum CIBIL score of 750 is considered a feasible number to get a home loan approved by a majority of banks and financial institutions. Though most lenders approve home loan applications of most home buyers in India, they may need to repay the borrowed amount in higher installments as compared to people with high CIBIL scores.

The Role of CIBIL Score in Home Loans

Every bank and financial institution refers to a person’s CIBIL score before considering his or her home loan application. Your CIBIL score plays a pivotal role in determining the money-borrowing ability of a person. CIBIL stands for Credit Information Bureau of India which is a government-backed credit information bureau and keeps the credit records of people and businesses. This is done by collecting all the information of the borrower against his PAN. Let’s find out what roles CIBIL plays in a home loan application.

  1. Loan Eligibility Check

When a home loan application is made, almost all financial institutions both public and private take into account your CIBIL score to determine your loan eligibility. People with a CIBIL score of 700 and above carry higher chances of getting their loan applications approved. This function is made possible only through CIBIL which maintains the credit records of people that can be either self-employed or salaried.

  1. Ascertaining Interest Rates

The CIBIL score of an individual also affects the interest rate he is eligible for. Financial institutions consider it as a risk assessment tool for lenders. An excellent CIBIL score increases the likelihood of home loan approval of a person and makes his or her eligible for lucrative loan interest rates. Several banks offer attractive interest rates to people with higher CIBIL scores.

  1. Loan Amount and Terms

The terms and amount of a home loan that is given to you are ascertained in part by your CIBIL score. Higher loan amounts and better conditions, including longer repayment terms, can be obtained with a higher score. You are eligible for a loan amount greater than 25 lakhs by a majority of banks, and you can increase your eligibility even more by adding the income of co-applicants.

  1. Quicker Loan Processing

Having a good CIBIL score can also hasten the loan approval procedure for a person. There are numerous benefits of getting a home loan for people with a good CIBIL score. From getting faster loan processing to attractive interest rates, and minimal documentation, there are several ways a home loan can help a borrower in buying his dream home.

Why Owning a Home is a Smarter Choice?

According to experts, owning a home is always a smarter choice than taking it on rent. Though paying rent may save you from paying hefty EMIs that may appear good for the short term, owning a home is actually a lot more beneficial than renting. Some of the major benefits of owning a home are:

  •       Building of an asset
  •       Freedom to customize
  •       An earning source
  •       Value appreciation over time
  •       Tax savings
  •       Money discipline

Classification of tier cities: Choose the right city to buy a house in India

According to the recommendations made under the 7th Central Pay Commission, the cities in India are put under three categories.

Tier 1- These cities contain all prominent hubs for politics, business, and culture. They have a population of 1 lakh and above. In general, these cities are backed by excellent infrastructure high per capita income, and excellent healthcare systems. A few examples of Tire 1 cities are Delhi, Mumbai, Bangalore, Kolkata, Hyderabad, and other such cities.

Tier 2- These cities are a part of the Smart Cities Mission, which is an endeavor of the Government of India launched in 2015. The initiative is projected to promote sustainable and unified development in urban regions by bringing the concept of smart cities and leveling up the quality of life for citizens.

These cities have a considerable share of economic doings such as employment, investment, trade, education, research, and others. The Tier 2 cities signify the overall development and progress of India.

Tier 3- In India, smaller cities that have lately seen substantial demographic and economic expansion are referred to as Tier 3 cities. While these cities are less well-known as compared to their tier 1 and tier 2 counterparts, they have grown to be important contributors to the country’s economy. These cities have lower income levels, fewer job possibilities, and fewer health and educational facilities than their tier 1 and tier 2 counterparts in India. They are also less developed. These cities are designated as “Tier 3” by the Indian government, which enables focused development plans for today and tomorrow.

The Conclusion

If you are looking to buy a house in any city in India, the role of your CIBIL score is very important as it paves the way for attractive interest rates and faster loan processing. The interest rate and other conditions of the loan also depend on the city you choose to buy a house in. For example, it is easier to get a loan approved in Tier 1 cities than in Tier 2 and 3 cities. So, always do thorough research before taking a home loan and do check your CIBIL score to get the best results overall.

By Manish

Manish Kumar is a seasoned Digital Marketing Expert with a passion for driving online success. With a wealth of experience in the dynamic field of digital marketing, he possesses expertise in SEO, SMO, PPC, and YouTube marketing, guiding numerous online businesses to achieve outstanding results.

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