Buying a home is a big aspiration for most Indians, and few of them can achieve this aspiration without a home loan, whether they are first-time buyers or not. A home loan allows them to purchase a property that they may not be able to afford based on their current financial capacity. I spoke about the different facets of the journey of a home loan, from application to repayment. This time, let’s take a look at some challenges you might encounter on this journey.
Rejection of loan application
Imagine what it would feel like if, after finalizing a good real estate deal, you are unable to finance it because your loan application was turned down. This happens to those buyers who rush without checking whether or not they are eligible for a home loan. Even if the applicant is eligible for a home loan, he must know how much he can borrow, what documents he must provide and what his interest rate would be. Confirmation of loan eligibility can significantly reduce the risk of loan rejection. Check beforehand if your own bank has a pre-approved offer for you.
When taking out a loan, many borrowers mistakenly think that they only have to pay interest on the loan. It is a mistake. You should be aware of all the charges that your home loan could entail. For example, the lender will charge processing fees, legal fees, documentation fees, MODT fees, property appraisal fees, and any other applicable fees when applying. When repaying the loan, there will be fees such as refinancing fees, late fees, documentation fees, and straightforward interest. Make sure you know these different costs, no matter how small, to avoid confusion down the road.
Insurance packages with loan
Borrowers often have the misconception that they should take out mortgage loan insurance bundled with the loan. It is not mandatory to take out insurance coverage, for the loan or the property, when taking out a mortgage. Some lenders encourage this coverage by offering you a lower interest rate. Some may say that they cannot give you the loan without the insurance coverage. But you have every right to refuse bundled coverage. You can always buy it later from your preferred insurer or at a price that suits you.
Difference in property valuation
The property you are considering buying at a certain price may not be worth the same as your lender’s appraisal. It might be a difficult situation financially if you have already paid the reservation amount as you may not get the desired loan amount from the bank. If you keep a 5-10% cushion while estimating the down payment requirement, it can help you deal with the problem of a lower valuation by the bank. You can check with other banks and HFCs to determine if they can provide a better appraisal of your property.
Down payment conditions
A property has a base price. Let’s say it’s Rs 100. If it’s under construction, it may attract a GST of Rs 1 or Rs 5, depending on the type of property it is. You may need to pay another Rs 5 for equipment, various funds and connections to utilities. You may need another Rs 5-10 for furnishings. You will need to pay another Rs 6 for registration and stamp duty. All in all, you will have to pay up to Rs 130 for the house which has a base price of only Rs 100. Of this amount you can get a home loan at 75% to 90% of the loan to value ratio. , base price included. , utilities and utilities, and GST. For a loan value case, the lender can go up to 90 percent of the loan value. For a high value case, the maximum you can borrow is 75 percent. The rest will come out of your pocket. So suppose you can borrow Rs 82.5 at a loan to value ratio of 75%, the other Rs 49.5 must be disbursed. You may need to pay this up front or in installments. Therefore, make sure you have that margin money on hand, without which you cannot complete your property purchase.
To avoid loan denial due to lack of margin money, you need to select a property that you can afford. Banks can also consider investments like NSC, LIC policy, etc. as collateral to increase your loan eligibility.
If you are aware of these issues, you can easily avoid them by being prepared.
The author is the CEO of BankBazaar.com. The opinions expressed are those of the author.