Buying a first home can be nerve-racking. It is because the process is difficult to deal. And what makes it that? At the top of the list is getting a home loan and setting the interest rates to purchase your dream property. While the advertisements are quite glossy but the process is painful, as any home loan taker will tell you – emotionally and financially. Following are the top 5 problems that a first time home loan borrower in India is likely to face and the solutions thereof.
Loan application rejection
Before the Bank/ NBFC decide whether it wants to give you a loan or not, it will assess your creditworthiness. One of the factors that will decide your fate is your credit score. If the credit score is less than 750 (out of 900), it reflects the fact that your credit service record is not up to the mark. A poor credit score may thus lead to an outright rejection of your home loan application. To avoid falling prey to such a situation, it’s important to start working on improving your credit score at least six months to a year of making a home loan application. A good credit score and smooth credit records will enhance your chances of getting your application through.
Inadequate down payment
Some lenders require a down payment of anything that can range between 10-20% of the property value. If you have do not have the required sum, your loan application may not be sanctioned. If you harbor the ambitions of purchasing a property, it is prudent to start saving for the down payment element at least 4-5 years ahead of the property purchase. For a homebuyer who is relatively young, equities may be the best means to save such funds. If you are unsure about making the correct investment choices, rely on the expertise of mutual funds and opt for the SIP route to save systematically in a disciplined manner
The interest rate choices
The interest rate dilemma is being faced by every prospective home loan borrower. While a fixed rate of interest may seem dearer in the first few years when it provides an element of certainty. Not opting for a floating rate loan may however mean that you may lose out on the benefits of a falling interest rate regime. This however means that you not only have to carry out your own research, with regards to interest rates but you must also have a basic understanding of interest rate movement and macroeconomic dynamics that will ultimately have a direct impact on your EMI.
A gap in property evaluation
The bank appoints its own team to evaluate the value of the property that you may have chosen and each lender has its own parameters for deciding the true value of the property based on legal, financial and technical appraisals. Often this practice leads to dissatisfaction for the borrower as there is likely to be gap in his own and the bank’s evaluation. In such cases, the loan amount sanctioned may turn out to be lower than what the borrower had assumed. To avoid such a situation, get the property assessed by a bank approved evaluator. This will help you to arrive at the correct estimate for your property and not lead to any disappointments later. (Know more about the Evaluation Process)
Not only the supportive documents along with the KYC’s you submit with your home loan application had to be in perfect order but your perfection related to property paperwork is also a matter of concern. Documents such as title deed and NOC must be in the format as required by the bank. If you fail to produce the documents or the formatting is incorrect you may lose out on a chance of availing a home loan. In order to avoid such a situation, ensure that you read thorough information provided on the lender’s website and prepare the paperwork beforehand so that you do not run in into trouble owing to documentation at a later date. (Know more about KYC)
Securing a home loan involves a great amount of preparation and might need an expertise help. But if you take out the time for the research, prepare your case and see it through by following the procedures faithfully as per the Banks/ NBFC, your home loan application could get cleared fast.