Owning your dream home is the ultimate dream of almost every Indian. An individual may not be able to finance the entire cost of their dream home; that is where home loans come into your help. Home loans let you own a home with affordable instalments for a prospective buyer and help him fulfil his dream of owning a house.
Banks and NBFCs offer up to 80% of home cost as home loan. You only have to bear the initial down payment of 20%. Home loans also cover costs of furnishings and interior designing for your home. It is good to check the various home loan products currently in the market and compare them before choosing one.
But a home loan is a long term commitment. Borrowers have to make repayments for up to 20 or 30 years to repay the entire amount, which results in a very high interest burden. Though home loan interest rates have been greatly reduced in recent years, they start at around 6.7% from public sector banks, the total interest repaid does amount to a considerable sum at the end of the loan tenure.
Planning To Apply For A Home Loan? Check Your Credit Report First
There are a few other problems faced by borrowers in regards to home loans. Let us look at a few challenges that one may face with a home loan –
Rejection Of Home Loan Application
There are occasions and situations when a buyer finalizes a home deal and starts the paperwork with the builder or seller only to realise later that his loan application was rejected. This usually happens to those buyers who rush into applying for a loan without checking their eligibility for a home loan. Even if a buyer is eligible for a home loan, they must check what amount they are eligible for and the documents they need to furnish to get the loan approved. They must also check with their own bank, where they hold an account, if they have any pre-approved loan offers for keeping good standing with the bank.
The Loan Charges
Many loan applicants believe that the interest on the loan is the only additional amount they need to pay. This is a common misconception. Other than interest, the loan comes with many hidden charges like the loan processing fees, legal charges, documentation fees, property valuation charges, etc. and many other charges that the lending institution may deem fit to be applied to your loan application. Not just these, but there are charges levied while paying the loan as well, like refinance costs, late payment penalties, documentation costs, and simple interest. The borrower must ensure that they ask for and understand all the applicable charges on their loan.
The Loan Insurance Bundle
Many loan providers insist on the borrower taking a bundled loan that comes with insurance that the provider itself offers. Many times, they say that the loan cannot be approved unless the borrower takes out insurance. However, this is a wrong belief, and the borrower is well within his right to refuse any such offer while taking a loan. The borrower has the right to take insurance from any of the outside agencies.
Difference In Property Valuation
The borrower may believe in a higher value of the property that is being bought, whereas the bank may decide that the value of the property is lower. This difference would then upset the loan expectations and approval process of the borrower. In order to avoid such a situation, it is therefore wise to keep a margin of at least 5–10% on the actual value of the property while deciding on the payment requirements. Based on the payment expectation that you set, you can then decide on which bank or housing finance company can meet and match your expected property value and payment terms and apply for a loan.
Requirements For Down Payment
Lenders give you loans only for 80% of the property value, if it is a new construction. For second hand sales, you can get only around 75% of the sale value. So it is the borrowers’ responsibility to arrange the initial down payment of 20%. This is along with the state wise registration charges for property registration. This largely varies from state to state in India. For example, Telangana charges around 6% registration charges while TamilNadu charges 12%. This amount itself is a pretty large portion of your total home purchase cost which you need to bear. Unless you have some kind of backing from previous assets, or you are a very great financial planner, it is difficult for individuals in their 30s to acquire this initial down payment amount to buy their home.
A Home Loan EMI Calculator can be a great way to determine your monthly EMI outflow so that you can plan your finances smartly!
Keeping everything that has been discussed in mind, every borrower must calculate the total cost of a property, check their own financial stability and strength, their repayment capacity, and then decide on which property to buy and which bank or housing finance corporation to go to for a home loan. A sound and calculated decision will save the borrower from having their loan rejected.