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.
Conclusion
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.
