How Hard is it to Get a Home Loan?

Last Updated : July 21, 2020, 11:12 a.m.

The approval of any loan depends on borrowers meeting the conditions as stipulated by the lender. And a home loan is no exception. You should have sufficient income to pay the home loan EMI without any trouble. Like any other loan, a home loan disbursal is also dependent on the successful submission of documents. But a home loan is beyond income and documents as there’s a property involved in a deal for which lenders need clarification. Plus, a home buyer needs to do formalities like doing the property registration and paying applicable stamp duty and registration charges. So, a home loan application approval and the subsequent disbursal can take more time compared to unsecured loans given the number of steps involved in it. But certainly not hard if the details provided are genuine. Let’s read what lenders like to see in a home loan application and the verification they do from their end.

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How Do Lenders Approve Your Home Loan Application?

Before applying for a home loan , you will meet the seller of the property, who will be a real estate developer if the housing unit is new and an individual if the transaction happens for a resale home. Initially, the two of you will sign an Agreement for Sale while paying the down payment sum to the seller. The down payment is the amount not financed by a home loan. Yes, a home loan is financed only to the extent of 75%-90% of the property value. Loans upto INR 30 lakh and above INR 30 lakh-75 lakh and above INR 75 lakh can be disbursed upto 90%, 80% and 75% of the property cost, respectively. You need to pay the remaining portion to the seller.

The agreement will also have details regarding the property you will get from the seller on paying him/her the full price through the loan amount. You will get a receipt of your contribution from the seller. Keep it with you for future reference.

What Should You Do When Applying for a Home Loan?

You can apply for a home loan either online or at the branch of the lender you want to. In either of these cases, you need to furnish your personal and income details, besides putting information regarding the property you wish to buy. If you apply online, the lender will send an executive to pick documents from you. In case you do it at the branch, you need to come with documents.

The lender can give you the in-principle approval to the home loan application if you submit valid KYC, income and property documents. KYC documents authenticate your identity and address. For identity, you can submit anything from Aadhaar, Voter ID, Driving License, Passport. For residence address, you can submit any of the Aadhaar, Voter ID, Driving License, Passport and utility bill. Remember, a PAN Card is mandatory for a borrower to submit .

What about income documents? This will differ based on your profession. If you are salaried, you need to submit the latest salary slips and Form 16. Whereas, self-employed will need to submit income tax returns, profit & loss statements and balance sheets for the last 2-3 years. Both salaried and self-employed will need to submit bank statements for at least 6 months.

As far as property documents for a home loan are concerned, there are quite a few you need to submit. These are Agreement for Sale, Property Map, Property Chain, Allotment Letter from the Builder, Payment Receipts, etc.

What Does the Lender Do After Receiving a Home Loan Application?

It will check your document details thoroughly before giving you the in-principle approval to a home loan. For instance, the lender will check the salary slips of the salaried to know different constituents of a salary. Knowing the salary income will give the lender an idea of the home loan amount an applicant is eligible for. If you consider today’s circumstances where salaries are getting cut owing to COVID-19 induced slowdown, lenders are calculating loan eligibility based on the salary amount applicants are receiving now and not what their actual remuneration is. So, they will most likely receive less loan amount as opposed to someone getting the full salary. However, the maximum loan amount is capped to the limits set against different property values.

Whereas, ITR, profit & loss account statements and balance sheets provided by self-employed give lenders an idea about their flow of income. Lenders analyze these financial statements and try to figure out the repayment potential of these applicants. They check the cash balance, stocks and the money self-employed owe to their respective creditors. Lenders also analyze the business of self-employed and figure out whether they can earn continuously.

Technical & Legal Verification to Follow Next

After checking the documents, it will send a team of legal and technical experts to do a verification of the property you want to buy. The technical team will check the map and see whether the construction is made as per the specifications or not. This team will assess the property value based on your location and the specifications of the home. Based on their assessments in the technical report, your home loan amount will be decided. In case they find any deviation, they will check the extent of it before taking a call. If the deviation is less, the lender will most likely approve the home loan application of such applicants. In case the deviation is significantly higher, the lender may either reject the loan application or offer a lower loan amount. The interest rate on the same can be higher than what would be the case otherwise.

The legal team will visit the property and ask you to hand them over the property chain involving a series of buyers if you are buying a resale housing unit. In case the property is getting sold for the first time, the chain will have you and the property developer only. A valid property chain will ensure the loan is approved without much delay.

A property chain helps prevent bogus real estate deals that are otherwise getting made between buyers and sellers. In case the chain shows any suspicious element and is put in the legal report, the lender will delay the final approval. And if things don’t improve, it won’t hesitate to reject the application either.

What Will Happen After the Lender Gives You the Final Approval?

Now is the time to do the final formality i.e. to get the property registered by signing a sale deed agreement at the concerned property registrar office. Two eyewitnesses from both the buyer and seller sides will be required. You need to pay for the stamp duty and registration charges for the property you want to buy. Stamp duty is the tax you pay on sale deed, conveyance deed, power of attorney, etc. The extent of stamp duty will depend on the laws framed by different state governments for house property, the type of property – residential or commercial, the gender of the property owner, the age of the house, the type of land on which the house is built. It will also depend on whether the property is on a freehold or leasehold basis.

You need to pay registration charges at upto 1% of the market value or agreement value of the property to get the property registered in your name. In case the value of the property is INR 50 lakh, the registration cost will be around INR 50,000. A Memorandum for Deposit of Title Deed (MODT) will be issued and that has to be handed over to the lender. The lender will go through it and transfer the remaining deal amount to the seller in the form of a banker’s cheque. The original MODT and property registration paper will be with the lender till the home loan is paid off in full.

Once you pay off the loan, approach the lender to issue you a No-objection Certificate (NOC). This document will certify that the loan is paid off in full and the lender can’t claim on the payments. Tell your lender to cancel MODT and give you all the original property documents.

Conclusion

Don’t get the wrong impression that a home loan application does not get approved easily. If you have valid documents, the process will be all the more smooth. The problem occurs when there’s a question mark over the documentation. Also, when the property valuation comes lower than your estimates, the loan disbursal amount becomes less. In such a case, you will need to pay a few more to the seller than what you would have paid to them while signing the Agreement for Sale’. If you have more savings, use them and get the home loan application approved. Those not having savings more than what they planned for may have to take help from other family members or relatives to cover the shortfall. The process is a bit long, so you can’t expect instant approval and disbursal against the home loan application you make. If documentation and other processes go fine, the loan will most likely get disbursed in 15 days or so.