Getting a home loan is a lengthy procedure. However simple it might look in the bank's advertisement, the fact remains that there are a lot of hiccups in the entire process. Here are the 7 most common problems faced by home loan borrowers in India. Each problem is discussed in detail and appropriate remedies are mentioned along with it. The objective of this article is to ensure that your home loan becomes a hassle-free experience.
1. Rejection at the first stage
Strange but true, many of the home loan applications do not pass even the first test. They are out rightly rejected due to incompatibility between the borrower's qualifications and lenders requirements. It could be the age criteria, income criteria, proper documents not being submitted, the bank not being able to verify your details properly, not passing the field investigations conducted by the bank and many more. The best way to avoid being rejected in this way is to check the eligibility requirements of lending banks carefully and apply only to that bank which matches your profile. Keeping proper documents ready and providing accurate, verifiable details to the banks will ensure that you sail through the preliminary verification process.
2. Processing fee not refunded
With every application form for home loans, banks require about 0.25% to 1% of the loan amount to be submitted as the processing fees. This processing fees is generally NOT REFUNDABLE. In simple words this means that for whatever reasons, if the bank finds that you don't deserve the home loan, this fees won't be returned. This is the cost of applying for home loans. If in any case, the bank you have applied to states that it will refund the processing fees in case the bank doesn't sanction you the home loan, it is better to get any such declaration in writing and make sure that the clause is enforceable. A verbal statement by bank authorities won't be of any use unless it is properly and legally documented. In all other cases there is little remedy for processing fees being not refunded.
3. Desired loan not sanctioned
The loan amount sanctioned is based mostly on repayment capacity of the borrower. Many things come into picture, when the bank decides how much home loan a person can get. The monthly income, financial history, other unpaid loans with the borrower, past repayment record, credit card usage history if any, bounced checks, average balance with the banks, continuity in present employment, total years in employment, nature of employment etc. These factors all clubbed together help the bank to decide whether it will be able to recover its money satisfactorily or not. If you get rejected due to any such criteria, you can increase your eligibility by clubbing together your spouse's, father's, son's, relative's income and make them a co-borrower. In addition to it, if you have sufficient funds in NSC's, provident funds, LIC policies etc. you can keep them as collateral and ask the bank to finance your home loan.
4. The interest rate dilemma
Whether to go for a fixed rate or floating rate interest for home loans is a dilemma which almost every home loan borrower faces. Even after deciding on a particular loan regime, the home loan terms and condition fine prints can create havoc with your interest rates. For example even if a borrower has opted for fixed rate home loan and the bank has promised him a rate which he feels is good, the catch is in the fine prints which authorizes the bank to vary this fixed rate every 2 years, things can go worse for the fixed rate borrower. Similarly if the bank doesn't pass you the benefit of lowered interest rates in floating interest rate regime, it will be of a little value. Avoiding such a situation essentially means that you study the terms and conditions of home loan carefully and clearly ask the bank about such things. In case of floating interest rates the facts can be verified by checking how the interest rates on home loan dropped during low interest periods. Ask your bank for some historic floating rate changes.
5. Difference in property valuation
The bank has its own experts for legal, technical and financial appraisal of the property in question. It evaluates the property on its own established parameters and assigns a value to it. This value can be significantly lower than the price you quoted for the property. Thus the bank will only lend you up to the amount it valued. This can cause a significant gap between what you need and what the bank is willing to lend. To avoid this situation the borrower can get the property valued before applying for home loan from a bank approved valuator.
6. The down payment
Banks require the borrower to fund at least 10% to 20% (varying from bank to bank) of the entire loan amount as the down payment for the home loan. This amount has to be deposited before the disbursal of the home loan. In the absence of such down payment the bank will refuse home loan to the borrower. For a home loan of 10 lacs this could mean anything between 1 to 2 lacs. This amount must be readily available with the borrower. In a scenario where the valuation of the property by bank is considerably lower than the market price of the property, the balance will also have to be paid by the borrower. This effectively increases the down payment. The obvious remedy to this tricky situation is to get the property valued beforehand and have the down payment ready. Some banks also allow NSC's, provident funds, LIC policies etc for down payment. It is generally a good procedure to check the down payment requirement of various banks and choose the one which requires the lowest amount to be deposited initially or fits your budget well.
7. Title deeds and NOC Documentation Problems
The title deeds and NOC documents have to be furnished in the bank's format. Borrowers who don't provide such documents in proper format, will ruin the entire exercise and won't get any home loan. To avoid falling into such uncomfortable situation, enquire about all the documents required by banks beforehand and take necessary steps to get them ready within the stipulated time frame.
Buying a home is one of the major decisions a person has to take during his life. It is rare to find someone who pays the entire cost of home at one go. A home loan is an essential part of any home buying endeavor. Taking a home loan is a long journey, which involves many stages. The key to getting your home loan in a smooth way is being familiar with the entire home loan process.
Beginning the home loan process in India
The process of getting a home loan starts with a formal application for the loan. The application form requires certain basic information about you. This will include your personal, residential, income, employment, educational details, details about the property, estimated costs and current means of financing the property. Though the requirements may vary from bank to bank but there certain thing which every bank will ask.
The application form must be supported with valid documents to substantiate the facts. Generally the banks will ask you to submit following documents.
- Income proof
- Age proof
- Identity proof
- Address proof
- Employment details
- Proof of educational qualifications
- Details about the property if finalized
- Bank statements
The purpose of the entire exercise is to ascertain the suitability of a applicant for a home loan. The income documents and bank statements provide vital clues to the bank regarding your financial health.
Processing fees for home loans in India
An important thing to note about home loans is the processing fee. Banks charge a processing fee for every home loan application. This fees is non refundable. The processing fees varies from bank to bank and is generally between 0.25% to 0.50% of the loan amount. This fees is used by the bank to start and maintain the home loan process including completing the various formalities during the entire period.
The above mentioned problems are very common, but can be easily avoided if the borrower follows proper procedure, prepares adequately before applying and takes care of correct documentation.