Buying a dream home on a home loan may not be as smooth as many may think. Firstly, a home loan is not financed fully, so borrowers need to pay something from their end to buy it successfully. Given the surging real estate prices, that obligation can be significant to service. In addition, the possibly high EMIs can make banks reject many home loan applications. Besides financial aspects, one also needs to consider the legal & technical compliance involved in a property purchase. Let’s talk about these in detail.
Problems That People May Face While Applying for a Home Loan
Not following the basics while searching for a home loan could lead to high repayment costs, application rejection, etc. While a loan rejection would decrease your credit score, increased payments could lead to a default later. Let’s check the problems people generally face while applying for a home loan.
More Interest Payments
Many take the words of bank executives too seriously. If the EMI put forward by the executive comes within their budget, they give their consent to the deal without checking if there are any cons to it. Some, therefore, go on to pay way too much to the lender through interest. Instead of getting influenced by their words, check the loan offers of different banks online, compare their interest rates, and use the EMI calculator. The calculator will show the effect of different interest rates, helping you grab a deal that reduces your repayment costs significantly. You can find the Home Loan EMI Calculator online.
Falling Short of the Required Down Payment Amount
A home loan is financed up to 75-90% of the property price. So, you need to pay the remaining 10-25% as a down payment to the property seller. The table below shows how banks lend according to the property price.
|Loan Quantum (In INR)||Loan Eligibility Based on the Property Price||Minimum Down Payment Required|
|Loan Up to 30 Lakh||Up to 90% of the Property Price||10% of the Property Price|
|Loan Above 30-75 Lakh||Up to 80% of the Property Price||20% of the Property Price|
|Above 75 Lakh||Up to 75% of the Property Price||25% of the Property Price|
Note – Lending norms can vary across lenders.
So, if the property you want to buy costs INR 60 lakh, the maximum loan allowed is INR 48 Lakh. In that case, you’ll need to pay INR 12 lakh as a down payment. A handy amount to accumulate and pay. While accumulating, you might face financial issues that would shorten the required amount for a home purchase. If you do face so, you might have to wait before you could buy your dream home.
Complexities Related to Legal & Technical Evaluation
The property you buy is verified on a legal & technical level. Let’s talk about legal first. Certified lawyers visit your property and ask for a list of legal documents such as property chain, property map to detect if any fraudulent transaction is taking place. In case these documents do indicate a suspicious transaction, lawyers will intimate the same to the lender while filing a legal report to the bank. The lender will reject your loan application after going through the report. Whereas technical verification is about checking the construction of the property in line with the property map. In case of any deviation, the certified engineers can reduce the valuation of the property, which would further reduce the loan amount. The lender might also hike interest rates in some cases.
Failing to Meet the Fixed Obligation to Income Ratio Norm
A fixed obligations to income ratio (FOIR) implies the proportion of EMIs to the net monthly income you receive. Lenders apply different FOIR norms based on the income of an individual. High earners can be approved for a home loan even if the EMI constitutes 50-60% of their in-hand income. But low earners would need to ensure the EMI does not go beyond 30-40% of their income. Since the surging real estate prices push up the loan amount, the EMIs invariably remain higher and could exceed the permissible EMI/NMI ratio in some cases. It would result in either a loan rejection or a lower-than-expected disbursal.
Processing Fee Complications
One needs to pay the processing fee of 0.25-1% of the home loan amount to the lender. But there comes a catch! While some lenders include legal & technical costs in their processing fees, others may not. Your overall cost may not rise though. But if you’ve arranged the amount keeping in mind the processing fee (exclusive of legal & technical costs) you saw online, you may feel a bit discontent when asked to pay a little more.