Seven Problems You Might Face When Applying for a Home Loan

Availing housing finance is a convenience that can help you purchase your dream house. But before you apply for a Home Loan, thorough research and planning are essential, especially since it is a long-term financial commitment involving substantial funds.

However, despite considering every facet, there could be some hurdles along the way such as getting a lesser-than-expected sanctioned amount, assigning of lower property value or even rejection of your loan application. Consequently, loan rejections may harm your credit score while a rise in EMI outgo could potentially lead to loan defaults.

Seven Challenges that One May Face While Availing of a Home Loan

To ensure a hassle-free loan journey, avoid these common Home Loan problems that applicants generally face:

1. Rejection of Application

One of the main problems faced by Home Loan borrowers is rejection at the first stage. This could happen due to discrepancies in the borrower’s qualifications that may not match the lender’s parameters such as age requirements, financial standing, documentation and so on. Hence, confirm the eligibility criteria and other details before you submit your application. Also, provide accurate information along with the supporting paperwork as requested.

2. A Higher Interest Outgo

When lenders promise lower EMIs, make sure you understand the implications. A lower EMI per month may translate into a higher interest outgo making your loan expensive. Therefore, check and compare the interest amount for different EMIs using an online Home Loan EMI Calculator and negotiate for the best possible rates. Further, Home Loans are offered at either a fixed or floating interest rate. Calculate both types of interest for feasibility before you select the ideal loan. 

Additional Read:  Differences Between Fixed and Floating Interest Rates 

3. Insufficient Down Payment

As per RBI guidelines, lenders can finance up to 75% - 90% of the property price. They cannot fund its entire value. Borrowers need to pay the remaining 10% - 25% as a down payment for the property.

The table below shows how lenders usually grant loans:

For instance, if you wish to buy a house worth Rs.60 lakh, you can secure funds up to Rs.48 Lakh. The balance amount, that is, Rs.12 Lakh has to be paid as a down payment from your own savings pool. As lending norms vary across lenders, check these requirements beforehand and arrange for the necessary funds so that you don’t fall short.

4. Issues Related to Legal and Technical Evaluation

Any property you seek to buy with a housing loan undergoes rigorous legal and technical assessments. Certified lawyers visit the property and examine the legal documents like the sale deed, property chain, property map, etc. for authenticity. If they find anything suspicious, a report is issued to the effect, based on which, lenders may reject your loan application.

Lenders also carry out technical verification of the property with the help of structural engineers. They assess the building construction in line with the property map. In case of deviations or other issues, they may reduce its valuation which will impact your principal amount; and you may have to contend with a lower loan amount at higher rates of interest.

You can get the property evaluated by experts before you apply to establish its market value and also estimate the loan amount that you could obtain.

5. Failure to Meet the FOIR

A fixed obligation to income ratio (FOIR) denotes the proportion of EMIs to the net monthly income. Lenders will be reluctant to extend loans if you have an unfavourable FOIR. They apply FOIR based on your earnings. High-salaried applicants can be approved for a loan even if the EMI comprises 50% - 60% of their income in hand. Whereas, those with a modest salary should ensure that the EMI does not exceed 30% - 40% of their earnings.

6. Processing Fee Complications

Every loan applicant has to pay a processing fee of up to 4% of the loan amount + GST as applicable. While some lenders include legal and technical costs in their processing fees, others may not do so. Be extremely cautious about what such fees and other additional loan charges entail to factor them into your total credit cost.

Additional Read: Types of Housing Loan Charges

7. Problems with Title Deeds and NOC Documentation

A No Objection Certificate (NOC) from local authorities is necessary for the commencement of any building construction. NOC papers and title deeds must be furnished as per the lender’s prescribed format for easier loan processing. Incorrect paperwork, errors in property details, forged documents and the like can prove to be a challenge during the verification process. Hence, ensure proper documentation before you submit them.

Preparing for Your Homeownership Journey

To avoid any roadblocks during your loan approval, bear in mind the common problems with Home Loans that borrowers normally face and take preventive measures. Each lender may have their own set of prerequisites that borrowers must fulfil in order to qualify for a housing loan. Look up the various terms and conditions and the current market trends to make informed decisions. 

*Terms and conditions apply.