Getting a home loan involves a lot of formalities and it is unique as compared to other borrowings in a few ways. Firstly, the amount is much higher than other loans (personal, motor, etc.) and secondly when you consider the skyrocketing property prices, it is an unavoidable debt for those belonging to the middle class. It’s not surprising that we encounter obstacles when we are trying to get a home loan, much before the long term burden of repayment even sets in. Here are some of the common problems you are likely to face when applying for a home loan:
Be Document Ready
Documentation is an integral part of the home loan sanction process and one of the most overlooked documents is the property NOC. NOC refers to the No Objection Certificate which needs to be provided when purchasing any property. Along with this, you also need to furnish the deeds of the house according to the bank’s specific guidelines. If any discrepancy is identified at any point during the process you have to begin all over again i.e. resubmit all applicable documents. To prevent this from happening, make inquiries regarding the loan before applying, and ensure you furnish all the required documents for home loan as per the lender’s request.
Have Down Payment Amount In Place
Down payments are a must for all big-ticket purchases—essentially, it refers to the amount that you pay out of pocket, while you avail a loan to pay the rest. Usually banks finance up to 80% of your home’s value, while the 20%has to be paid as a lump sum or down payment. If your home costs Rs.30 lakhs, it means you will have to pay Rs. 6 lakhs out of pocket as a down payment. Also, in case the bank’s valuation of your home doesn’t match your own, the difference also has to be paid by you.
It is always advisable to get your property evaluated privately, make enquiries at the bank and do your due diligence before applying for a loan. That way, you can see if you can afford to pay the down payment and either make an application or seek another loan provider that fits your need better.
Apply For The Right Loan Amount
The amount that the bank is willing to lend you depends not only on your need, but also on your financial capacity, credit history as well as other factors such as how much the home is worth according to your bank. In case you have a poor credit score (because of unpaid credit card bills, multiple loans already availed against your name, erratic repayment record, etc.) the bank may refuse to lend you the loan amount that you desire. Additionally, before giving you the loan, the bank will get the house appraised by its own representatives. In case their valuation is less than the price you are paying, the loan sanctioned may fall short of your expectations.
To ensure that the loan amount sanctioned is sufficient for your needs, bolster your funds by clubbing it with your spouse or your parents. In addition, you can keep existing property (gold, insurance policy) as collateral and borrow against that to improve your chances of securing the desired home loan amount. Make sure you get your desired property appraised by an approved official before you apply for a loan, and calibrate your expectations accordingly.
Decide The Interest Rate Type
Loans come with either of the following modes of interest— fixed rate or floating rate. Fixed interest rates protect you from market fluctuations, and your monthly EMI payments remain stable during the home loan tenure. With a flexible interest rate, you can take advantage of dips in the market and pay a lower interest charges during those times. However, the reverse can happen as well. If you are opting for floating interest, ask the bank for records of interest patterns in the past. In case you go for fixed interest rate, note that the bank has the right to revise the home loan interest rate periodically. Depending on interest changes in the past, a floating rate may turn out to be beneficial in the long run.
Ensure You Meet The Criteria Before Applying
There can be many reasons for the rejection of a home loan application, some of which have already been mentioned. In case your credit score is very poor, not only will your interest rate soar, but your loan application may be rejected altogether. In case of improper documents, poor credit score or low income level your loan may be rejected in the first stage itself. Ironically, such rejection causes your credit score to decline further making it even more difficult to get a home loan.
To avoid such an eventuality, acquaint yourself with the bank’s norms before applying. With every application, you have to pay a processing fee which is usually non-refundable. And every time your application is rejected, your credit score is adversely impacted. So do your homework and cover all your bases before applying for a home loan. In case you feel you are not eligible with a particular provider, conduct thorough research and look at other providers to compare before selecting the option that works best for you.
When you have issues with your home loan application, the key is to not get disheartened and to work towards financial recovery so that you meet the requisite qualifying criteria. The financial market is full of options and there is bound to be a tailor-made solution applicable to you in the future even if one does not seem to be available at present.