Ways To Deal With The Most Common Home Loan Problems
Securing a home loan might look a breeze from the outside, but it is not so. Though bank executives guide you through the process, there still are certain common problems that you face while trying to avail of a home loan. MakaanIQ tells you about those problems and suggests ways to make your home-loan process smooth.
Early application rejection
Many home loan applications are rejected at the very outset. The reasons are many. Some get rejected because there is a wide difference between what the borrower is seeking and what the lender is able to sanction on the basis of the borrower's eligibility. Also, the loan application could fail to qualify on parameters like age, experience, income, credit score, document checklist, negative technical or legal verification reports, doubtful field verification reports, etc.
Remedy: To avoid getting your application rejected at the first stage, pre-check the eligibility requirements of the bank and apply with your profile and requirements in mind. Also, providing accurate information and supporting documents will help you sail through the preliminary process smoothly.
Sanctioned amount less than expected
The amount of home loan that the bank sanctions is on the basis of the borrower's repayment capacity. But that is not the sole criterion. The lender may also probe on other parameters like financial history, credit score, unpaid loans, monthly average bank balance, bounced cheques, employment stability, etc. The lender takes the final call on lending only after considering all these factors.
Remedy: To increase your loan eligibility, club the income of your working partner, spouse or parent to your own. You can also present your additional income — rental income or bonus, for instance — to improve your loan eligibility.
Which interest rate type is better?
Most borrowers are not sure whether they should go for a fixed- or floating-rate home loan. If you opt for a fixed-rate home loan and the rate that the bank has offered seems comfortable to you initially, also read the loan agreement carefully. The agreement authorises the bank to tweak the fixed rate after every two years. And, in a floating-rate regime, banks might not pass the benefit of lowered interest rates.
Remedy: Study the terms & conditions of the loan agreement carefully and seek explanation for any clause that confuses you. Keep track of interest rate fluctuations in the market to know the facts related to floating interest rates.
'Bias' between existing and new borrowers
Among the most common issues that an existing borrower faces is that of a discrepancy in interest rate charged from them vis-à-vis a new borrower. The home loan interest rate offered is linked to the base rate (now known as marginal cost of funds-based lending rate, or MCLR). An existing borrower would have been charged an interest rate at the base rate prevailing at the time he had applied for his loan. That rate might have been different from the one charged from the new borrower, depending on the lending rate situation at present.
Remedy: If you switch to another lender, it treats you like a new borrower and offers you the benefit of the lower interest rate prevailing in the market. It is crucial for you to understand the real merits of moving your loan to a new bank before taking such a decision. Remember, most lenders charge 0.5-1.00 per cent of the outstanding loan amount if you are moving your existing loan to it.
What is the correct value of a property?
Banks outsource to third parties the work of doing technical and legal valuations of the property/asset for which a loan is sought. This third-party agency evaluates the asset on the basis of its own set of parameters and then assigns value. The lender funds you only a certain amount or percentage of this value. So, there might be a gap between what you want and what the lender can fund.
Remedy: To prevent any confusion over the real value of a property, get its valuation done by a valuer before approaching a bank for loan. It is advisable to get the market rate of the property ascertained by two valuers.
The documentation involved in a home loan process can be tedious for many applicants. Home loan is a versatile process that requires a careful review of a huge bunch of documents. The process itself can often be cumbersome, unless you have a clear understanding of why a certain document is important. Paperwork is essential, irrespective of your credit score and income level.
Remedy: It is important to be aware of the bank's processes and procedures. You should know why banks seek certain documents. Go through the standard home loan checklist for the banking product you are applying for. Also, if there have been any discrepancies in the past, be ready with supporting documents.