A home loan has become a common practice today. There are many benefits to taking out a loan to buy a house, even if you have the money to buy it. But before you apply for a home loan, thorough research and planning are essential, especially since it is a long-term financial commitment involving large funds.
Even after examining all these aspects, there may be some hurdles along the way, such as getting a lower amount than expected, giving a lower property value or getting your loan application rejected. Getting a loan rejected can adversely affect your credit score, while an increase in EMI outgo can lead to loan default. Let’s take a look at some of the possible hurdles:
Seven Challenges Home Loan Applicants Face
- Application Rejection
One of the major problems home loan borrowers face is getting their application rejected at the initial stage. This usually happens due to discrepancies in the borrower’s qualifications. There may be many discrepancies in the lender’s age, financial status, and documents. So, confirm the eligibility criteria and other details before submitting the application. Also, provide accurate information along with the required documents.
- High interest rate
You should understand the pitfalls of opting for a low EMI. A low monthly EMI can lead to a high interest rate, which can end up being a larger amount than your loan. So, check and compare the interest rates for different EMIs using an online home loan EMI calculator to find out which is the best rate. Also, home loans are offered at a fixed or floating interest rate. Calculate the interest rate for both types of interest before choosing a suitable loan.
- Down payment
As per RBI guidelines, lenders can finance up to 75% - 90% of the property price. They cannot finance its entire value. Borrowers are required to pay the remaining 10% - 25% as a down payment for the property.
The table below shows how lenders typically sanction loans:
| Loan Amount | Loan eligibility as per property price | Minimum down payment needed |
| Up to Rs.30 Lakh* | Up to 90% of the property value | 10% of the property value |
| Between Rs.30 Lakh – Rs.75 Lakh* | Up to 80% of the property value | 20% of the property value |
| Above Rs.75 Lakh* | Up to 75% of the property value | 25% of the property value |
For example, if you want to buy a house worth Rs 60 lakhs, you will get a loan of Rs 48 lakhs. The remaining amount, i.e. Rs 12 lakhs, will have to be paid as your own down payment.
- Issues related to legal and technical appraisal
The property for which you apply for a loan will undergo rigorous legal and technical appraisals. Certified lawyers will visit the property and thoroughly examine the legal documents such as the sale deed, property chain, and property map for authenticity. If anything suspicious is found, a report will be issued, and the loan may be rejected.
Lenders will evaluate the building construction as per the property map with the help of structural engineers. If there are any deviations or other issues, they may reduce its valuation, which will affect your principal amount; you may end up getting a lower loan amount at a higher interest rate.
- Failure to meet FOIR
A certain obligation ratio (FOIR) is the ratio between your income and your EMI. If you have an adverse FOIR, it will be difficult to get a loan. FOIR is calculated based on your income. High-salaried applicants can get a loan approved even if their EMI is 50% - 60% of their income. Meanwhile, those with moderate salaries should ensure that their EMI does not exceed 30% - 40% of their income.
- Processing Fees
Each loan applicant has to pay a processing fee of up to 4% + GST of the loan amount, as applicable. Be sure to understand exactly what percentage of your total credit cost these fees and other additional loan charges will constitute. This may not be explained by the lender.
- Issues with Title Deeds and NOC Documents
A No Objection Certificate (NOC) from the local government is required to commence any building construction. NOC papers and title deeds should be submitted as per the prescribed format to facilitate loan processing. Incorrect paperwork, errors in property details, forged documents etc. can lead to rejection of the loan. Hence, ensure proper documentation before submitting them.
To avoid any hassles during loan approval, understand the common problems related to home loans that everyone usually faces and find the solution for the same. Each lender may have its own prerequisites that you need to fulfill to qualify for a home loan. Check the various terms and conditions and current market trends to make your decision.
