Why can’t I get a mortgage regardless of good credit score rating?

My take-home wage is ₹1.1 lakh. Of this, I pay equated month-to-month instalments (EMI) of ₹40,000 in direction of a house mortgage, apart from month-to-month faculty charges ( ₹13,000), and a private mortgage ( ₹7,000 each month). I had obtained this private mortgage from a web-based personal cash lender. As of now, my credit score report, obtained from varied credit score bureaus, exhibits a rating of 800 plus however I’m unable to get a mortgage. What might be the explanation for this?

—Name withheld on request

A credit score rating of greater than 800 is superb and will get you a mortgage simply. However, please notice that the credit score rating of 800 displays your creditworthiness and never your eligibility. It exhibits you’re a accountable borrower and have repaid on time. However, the mortgage eligibility of a person is decided by his reimbursement capability, which in flip is decided by the disposable revenue out there for spending in spite of everything mandatory bills.

It is tough for lenders to estimate the month-to-month bills of every borrower individually so that they go by a pre-determined proportion of 1’s web revenue, often known as the fastened obligations to revenue ratio (FOIR). The FOIR takes into consideration all instalments of loans availed by the applicant, together with the EMI of the potential mortgage into consideration.

Most banks depend on the FOIR to gauge the reimbursement capability of the mortgage applicant. As a rule of thumb, lenders prohibit FOIR to a most of 40-50% of the month-to-month revenue. So, in case your revenue is ₹1,10,000 monthly and you’re paying a house mortgage EMI of ₹40,000 and a private mortgage EMI of ₹7,000, your FOIR is already near 43% (47,000/110000 x 100).

This leaves you with little or no room for an additional mortgage. At probably the most, you possibly can take a mortgage with an EMI not exceeding ₹8,000 monthly.

Some non-bank monetary corporations are prepared to lend to people despite the fact that the FOIR restrict has been breached. But such loans come at a better price of curiosity. Also, it isn’t advisable to take a mortgage which stretches your funds past the said limits. When your private mortgage ends in two years, your FOIR will go down, enhancing your eligibility to entry recent credit score.

Raj Khosla is managing director at MyMoneyMantra.com.

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Updated: 12 Jun 2023, 11:06 PM IST