Life is full of Shocks so as Home Loan Application. Its a universal truth that Home Loan is most preferred source of funding to buy a property. Newspaper is full of Ads where banks are luring the customers by offering attractive Interest rates or waiving off Processing fees. Prime facie its look like child’s play to avail Home Loan and buy your dream house but its not true. You can also check post on How to Buy House with Home Loan
World is not so simple as it looks. The first step of buying a house through Home Loan is to apply for Home Loan & for that you need to submit Home Loan Application with the bank. As i always mention that before filing Home Loan Application it is advisable to check CIBIL Score. Low CIBIL score is most common reason for Home Loan Application rejection. Besides CIBIL Score there are some other critical considerations which play important role in Home Loan application. As a borrower i should be aware of all such points. I am listing down Five Shocks of Home Loan Application in this post.
Home Loan Application
Rejection of Home Loan Application is the last thing in this world which anyone can expect. All Home Loan providers do a profiling of customers and if the customer fits under banks acceptable profile than only the Home Loan is approved. Besides CIBIL score, some of the most common reasons for Home Loan Application rejection are
(a) Profession: Banks don’t lend to people in specific professions (I would not like to name the same). Normally these professions are risky with high degree of job uncertainty or job as such is risky in nature. One such broad category is self employed people. Its quite unfortunate that self-employed people find it most difficult to avail Home Loan in India.
(b) Income: Thumb rule is that your monthly EMI outflow should not exceed 40% of total income. It can be relaxed upto 50% but if there is huge mismatch between Income level and EMI than the lender does not have any other option but to reject Home Loan Application.
(c) Geographical Areas: Home Loan lenders don’t approve loans for specific Geographical Areas. Reasons can be many like Terrorist Threat, Environmental Issues, Areas Notified by Govt for projects, Disputed Land etc.
(d) Age of Property: If property is more than 25 years old than in all probability loan will not be approved.
Processing Fees
Home Loan processing fees is charged along with Home Loan Application. Processing fees may vary from 0.1% – 0.5% of Home Loan amount or fixed in the range of 10k – 20k excluding service tax. If god forbids and Home Loan Application is rejected because of any reason, Bank will not refund Processing Fees.
Common misconception is that this fees is refundable in case Home Loan Application is rejected or if the Borrower decides not to avail Home Loan at later stage after the loan is approved.
It is better to discuss all such scenarios with Home Loan Provider & take it in writing before signing below the dotted line. In financial world, verbal commitments have no meaning.
Sanctioned Amount
As i mentioned in my comments that it is always advisable to apply for pre-approved Home Loan rather applying for Home Loan after finalizing the property. The biggest disadvantage of applying for Home Loan after finalizing property is that you are not sure of Home Loan Eligibility.
One of my reader, Mr. Darshan finalized a property and was planning to avail Home Loan along with his wife as co-borrower as she was also working. The Home Loan requirement was 80 lacs but combined eligibility i.e. Home Loan amount sanctioned was 60 lacs. It was a shocker and Mr. Darshan lost the token amount also as he was not able to manage deficit of 20 lacs.
Its a wrong notion that if your salary is high than your sanctioned amount will be high. Banks consider multiple factors besides salary like current liabilities, current age, no of dependent members, any old age member in the family, other risks involved etc.
As per RBI guidelines, Home Loan sanctioned for any project should not exceed 80% of total cost if Loan amount is more than 20 Lacs & 90% for Loan amounts less than 20 lacs.
Valuation of Property
Another important criterion though it is not a major concern in big cities where property valuations are almost inline with sale value. In certain pockets of big cities & some upcoming cities, the sale values are much higher compared to Valuation of Property. Banks and Govt have Certified Valuers who are expert in property valuation. The loan amount also depends on Property valuation e.g. if you bought a property for 50 lacs and Bank Value the same at 30 lacs than bank will not sanction more than 24 Lacs as Home Loan amount even if you fulfill all other eligibility criterion.
Home Loan Documents
Banks provide list of documents required for Home Loan application approval and another set of documents required for property evaluation. If a borrower fail to provide any of these documents than Bank can reject the Home Loan Application. Bank may compromise on few non-essential documents or may suggest legal remedy if any such document is not available but 90% documents are must to process Home Loan Application. It is better to hire expert who can help in this process.
I have tried to list down Five major points which can through nasty surprises to Home Loan Borrower. Besides this there are Hidden Charges, Penalty clauses, Interest Rate Variance, Teaser Home Loans, Prepayment/Pre-closure charges for fixed Home Loan, Charges levied at the time of Home Loan closure etc are few more surprising elements which i already covered in my other posts & comments. It is always advisable to read Home Loan Agreement thoroughly and understand all the charges involved in Home Loan process to avoid any future hassle. Though banks are reluctant to share most of these details but persistence is key to success. After all bank is not doing favor & you have to pay back the loan amount with interest :)
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Hi Nitin,
Thanks for giving so much useful infromation about Home loan.
As you refered in this article ,Loan Eligibility -thumb rule 50% of salary.
My net salary is 53 k and looking for loan 30-32 lac. When I enquired AXIS bank and LIC HFC,both are informed to me you will it 30/32 lac on 20 year tenure but SBI said 30 lac eligble on 30 year tenure only.
I am confused,Which bank should i go for it?
Is there any possible chance my home loan get reject on axis bank and LIC ?
What SBI is saying is Right as i have calculated for 30 Lacs Loan for 30 Years your EMI will be approx Rs 26,437 per month @ 10.15% interest rate i.e. EMI is 50% of your net take home salary. It is ideal and comfortable situation for Home Loan Borrower.
If you avail loan from Axis or other HFC your EMI will be 60%-65% of take home salary and according to financial planning thumb rule its difficult to manage for any individual and may lead to Loan default.
In my personal opinion, you go ahead with SBI and in future with increase in income you may pre-pay or increase monthly EMI.
Loan can be rejected on various grounds like CIBIL Score, nature of job, job stability, unsecured loans etc. Banks have certain ground rules to approve the Home Loan and if any of those is not fulfilled then loan can be rejected by the bank.
Thanks Nitin
If i choose SBI then 30 year is Long time and more interest. In this perspective loss of money, In future ,If i will increase the EMI, whether the any possibility loan tenure is decrease? Please correct me if i am assume anything wrongly.
Is it all bank account holder name register in CIBIL database ?,
80% Home Loans are closed within 7-8 years so trust me you will also close it within 7-8 years as your income will increase & you may pre-pay from annual bonus etc. Also i agree with SBI as you can’t spare more then 50% of net take home salary for EMI. If you pre-pay or increase EMI then your loan tenure will decrease.
If you have any credit history then your details will be available in CIBIL database. Savings account holder details are not reported to CIBIL.
We are selling a flat and the buyer is applying for a home loan from LIC. LIC says that they will take 5 days after receiving the original documents to prepare the cheque, while we are requesting that they take the Xerox’s and we will show them the Original documents, but will hand the originals over only against receipt of the demand draft. Our lawyer has advised us not to give any originals without the full payment being received by us. We do not want to take any risks and the building has not yet got an OC for many years, though the approval is in process. Please advise.
I concur with your Lawyer. All the original documents should be handed over to buyer or buyer’s home loan bank only at the time of property registration / at the time of receipt of full & final payment.
Thanks
I have home loan from BOB and then it was taken over by Kotak. Now, I am looking for another lender who can takeover to get advantage of lesser interest rate. I have very good CIBIL score > 800 and my EMI will be lesser than 40% of net salary – so no issues on personal agenda.
Though current lenders are asking for some property documents which I am unable to provide. For my Bangalore property, I have sale deed, sale/construction agreements, khata, property tax receipts etc and I am staying there only from 6 years. But, current lenders are asking for “Sanctioned Plan” and “Occupancy Certificate” which I am unable to provide. Its a small scheme and as we (all residents) had problems with builder during possession, he has not provided these documents during possession – now, he has closed that legal entity also and not responding on any queries. So, how to get these documents? Also, are they essential? If yes, how did we get earlier loan from BOB or Kotak and my neighbor got from HDFC? Also, lenders are asking for society NOC but we dont have registered society as its only 20-flat society with only 5-6 owners – nobody interested to register it as society. Also, as its registered on my name and my brother’s name, some banks are not providing loan already.
So, what are other options for me in this case?
In Bangalore almost 60% properties are disputed/legal deviations some way or another. Unfortunately due to increasing NPA’s, Banks / HFC’s are now doing stringent legal checks for loan approval. Recently some Banks / HFC’s have stopped providing loans to properties with Khata B.
In your case, Sanctioned Plan, Association NOC and OC (Occupancy Certificate) are must to avail Home Loan. I can’t comment how come loan was approved in past in the absence of these docs but these documents are must.
As a 1st step, i strongly recommend to form the association and register the same with sub-registrar office. I suggest that all owners should hire a good property lawyer / consultant who can help in this process.
After forming association/ resident society, for OC and Sanctioned Plan the association can approach BBMP. Association will get both these documents from BBMP but it will take time. Again you can take help of a lawyer. You can also explain the case to BBMP and reasons for delay as the builder is not a legal entity.
It is impossible to get all these documents as an “Individual”
hi , i’ve just been sanctioned a home loan from SBI ,but unfortunately when I compared the agreement with what i was offered initially i found out that SBI disburses only 10% of the loan amount after completion of foundation whereas I was initially told by one of their executives that 35% of the loan amount will be sanctioned after completion of foundation. I am now in a complete fix as my entire project was planned on this disbursement factor. SBI officials are just not agreeing to increasing the disbursement percentage. My query is that , in case i want to change the bank now , will it be a problem – will my scores in cibil get affected
As the Home loan is sanctioned & ready for disbursement therefore entry should have been made in your CIBIL database. I suggest you to check with other banks for Home Loan Transfer option. Home Loan Transfer will not impact CIBIL score.
Hi Sir,
I am taking loan from LIC of 16 lacs for a plot on which builder will build the house in 3 months.
1) LIC will provide me sanction letter in 3 days. Does it means that I can eligible for entire amount mentioned in sanction letter.
Because they will give 10 lacs first for plot purchase. after that they will give amount in parts as per construction of house.
Because i need exact 16 lacs and suppose I will get sanction letter of 16 lacs as well. After the 10 lacs , Is it sure that I will take remaining 6 lacs or they can denie or whether they will create some problem.
You are eligible for full amount mentioned in sanction letter. It seems disbursement will be CLP (Construction Linked Plan) so as and when construction milestone as mentioned in Sanction letter or Home Loan agreement is reached, you can submit demand letter issued by builder or from your end and LIC will release the next installment. All the best.
Thank you so much sir :)
Nitin Sir,
I am taking loan from Axis bank for purchasing new flat. I paid 20% down payment,agreemnet & registration cost to builder. now i have to pay electricity charges + maintenance + society formation, please guide me how can i avail this amount from bank. In sanctioned letter it is clearly written that above charges will not born ftrom bank.
You can explore following options
1. Avail Home Improvement Loan as per your requirement.
2. Personal Loan from Axis Bank
3. Overdraft facility from your existing Savings account
4. Gold Loan
5. Loan against insurance policy
6. Loan against PPF account
Thank you sir for replying but I have already using personal Loan, gold loan, not eligible for insurance policy & ppf. Could you please highlight option 1&3.how can I take benefit from one of it?
As i have not gone through your documents therefore you may discuss these options with bank reg eligibility and process. Bank executive will help.
Thank a lot sir
hello Sir,
My home loan disbursement stuck in last moment due to charity letter required to axis bank from builder/society regarding rate hike of flat previously charity approval taken from commissioner for A Rs now after few years society wants to sell the flat in A+2 Rs , now axis bank wants new rate approval for disbursement. I have done agreement with 20% payment to builder. Builder is saying that it is not possible to again take approval easily. please guide what I can do in this case. thanks in advance.
Without going through all the documents, i may not be in a position to answer this query.
I apply for SBI home loan. The executive now says the plan has deviation since two plans are combined for one flat. Is this true? any alternative to get the loan approved?
I concur with SBI if there is deviation. You can check the original plans and if there is deviation the you need to get new plan approved from local development authority then only you can avail Home Loan
Sir i got sanction letter from LIC.
interest rates are mention as follow.
fixed rate 1-24 months 10.10
Floating rate 2-240 months. floating rate of interest linked to the then prevailing LHPLR (subject to periodic review) and LHPLR is 14.50
I am clear about first that i will charge 10.10 first 2 year for first 2 years right?
but not sure about second does it mean that i have to pay 14.50?
Please sir suggest.
The whole catch lies here that LICHFL does not mention spread in sanction letter or Home Loan Agreement. Current spread offered by LICHFL is 2.5% which will be informed to you after 2 years so if everything remains same for 2 years i.e. no change in spread then your ROI will be LHPLR minus spread i.e. 14.50% – 2.5% = 12%. In short, you will be paying approx 1.75% extra ROI compared to market rate.
thanks sir for your reply.
so does it mean that after 2 years I should transfer my loan or is there any way to pay less interest rate.
please suggest.
LIC HFL does not provide option to reduce ROI by paying conversion fees. You have to transfer your Home Loan after 2 years.
Hi Nitin,
My Current avg take home salary is around 31500 so my loan eligibilty is around 18 lac for 30 years.
My current age 25 (unmarried)
I am paying 4500 towards LIC policy, will this amount will be considered when Bank will calculate my eligibility.
Also I am planning to finish the loan in 5-7 years, going with SBI i have to go with some Rinn suraksha property insurance plan, but going with some private bank I have a doubt of getting chrged at higher rate of intrest over a period of time.
Please suggest the best thing for me.
Thanks
Nitin
Bank ask for other liabilities but will specifically not consider LIC policy premium in liability. SBI is good to go but i will not suggest you to opt for Property Insurance Plan which is very costly. Instead you should opt for good term insurance plan from HDFC Life Insurance, SBI or Max Life Insurance.
I already have a life insurance plan which gives me a cover of 10 lacs,(as already mentioned) is it possible to use the same plan also while bank ask for assurance.
You may mention the same to bank.
Dear nitin ,
What is the minimum amount of loan for which any guarantor or insurance policy is not required.(if possible)
Thanks
Nitin
There is no thumb rule for guarantor. It depend on risk assessment of a Home Loan provider. Insurance policy is not required if you don’t wish to avail. It is not mandatory.
Loan that is approved is 36 lakhs and 27 lakhs of partial disbursement is already done.
If I have funds of 9 lakhs from other sources and pay it off to the builder, can I avoid taking the rest of the 9 lakhs pending from the loan approved ?
How can I approach the bank to inform them that the rest of the 9 lakhs of the last disbursement is not needed anymore ?
Please suggest.
It is very much possible. You can submit written application to bank that you don’t need balance disbursement. Bank will change your home loan amount from 36 lacs to 27 lacs.
Dear Nitin,
I have identified an apartment in HYD which is under construction and approximate time of possession is within 6 months. I have few queries regarding the property. can you please clarify-
1. The Builder is refusing to give any of docs (even xerox) related to property outside before I pay 20%. He is saying that if required I can see them at his office only. Is the builder trying to hide anything? How can i handle this situation-I am not a legal person.
2.I am planning to go your suggestion-to apply home loan to a bank which has not pre-approved the project? What if the bank rejects the application saying that property is not genuine? Will I get my amount back. If the builder delays submitting the docs voluntarily or bank delay its processing- how can i handle this situation.I have not even taken grant from any bank for my self also.
3.When Can i get the agreement draft? Will I get it after paying a token amount of Rs.10,000? Can i ask for any changes in it? Will the builder agree?Or should I have to sign the agreement directly? Is there any way where I can see the terms like penalty for delay etc..even before paying token amount.
Thanks in Advance!
Prasanth.
1. I observed same approach of Hyderabad builders in my client cases also. You may check which all banks/HFC’s have approved the project. It will give fair idea on title of the project. Also you can take your lawyer along with you if you anticipate something fishy.
2. Yes, you will get refund. You can insist inclusion of this clause in your agreement with the builder. On safer side take 45 days time to close the deal.
3. All these queries are subjective. Once you pay booking amount i.e. 20% you can demand the draft of agreement. The changes in the agreement are possible but you need to clarify all these points in writing to builder. You may get copy of agreement online on discussion forums related to this project.
Dear Sir/Madam ,
Greetings of the Day !
I am going to apply for home loan to LICHFL.
I have one query to ask.
If suppose my property cost (Agreement value) is 50lakhs.
If LICHFL gives me pre-sanction letter of only 30 lakhs (Depending upon my income sources).
Initially I will 20% (10 Lakhs) and do the agreement with builder.
How much amount can LICHFL disburse ?
Looking forward for your earliest reply.
Thanks !
Regards !
Sham
09766108221
LIC HFL can disburse max up to 30L. 30L is your eligibility but may be LICHFL conclude that property value is much less than the purchase price then they may reduce 30L to lesser amount.
I have been allotted a plot of 300sqm by UPSIDC in Kanpur city.Our husband wife take home salary is Rs. 66000 per month.We both are in state government .We both are 43 years old.Cost of the plot is Rs 5640000 .We want a loan of Rs4000000. To this we applied to LICHFL.They approved my loan with a rider of two years fixed interest rate and remaining of 15 years at floating interest rate.While I have requested for floating rate of interest from start.Now after my insistence they say they have again send my file for approval with floating rate of interest.But now they demand a guarantor and forward a reason that in an allotment case it is necessary.
The LICHFL is misleading you on entire case. There is no special approval required for pure floating loan. If you are eligible then you can demand floating interest loan. Being a govt employee, i don’t think you should face any issue. Floating interest loan is available at 9.50%. As husband and Wife are availing joint plot loan therefore guarantor is not required. The wife who is co-borrower is guarantor in this case.
Dear Sir previously I want to sell my flat & had given approval to one bank to sanction home loan against my property documents to buyer .Now i am changing my decision to sell my flat but concern buyer home loan already sanctioned by bank .I had not made any legal deal Or taken any amount from buyer .Now concern buyer is forcing me to do sale aggrement & registration but i am not ready to sale my flat & i also ready to pay processing fee charges to him. Can buyer take legal action on me if home loan is only sanctioned not any deal or amount is taken from him ?
The buyer cannot take any legal action just based on verbal commitment even if the home loan is sanctioned.
Sir
As a resale property seller I have put a clause in the SALE AGREEMENT wherein I have mentioned even though SBI has given In principle pre approved Home loan based on Borrowers credibility, “in the event SBI values the property less than loan approved and decides to pay less the Buyer has to arrange funds and pay this remaining amount to Seller on the day the Sanction Letter is issued by Bank for acceptance and if there is any delay in payment by Buyer he should pay interest to the seller on the money that he has to arrange through his own funds from the date of issue of Sanction letter to the date he pays up but not later than the agreed date of Sale Deed”. This clause will come into play only if SBI values the property less than what was approved and accordingly mentioned in SALE AGREEMENT
Now the Buyer is not accepting this and has cancelled the sale agreement and wants his token money to be returned, saying that Buyer and Seller have disgreed on the terms and hence he should get back his token money but I as a seller feels that the clause put is reasonable due to the element of risk or chance involved wherein SBI does not pay the full loan amount as agreed in in-principle Pre approved loan.
I now want to Forfeit his token money please advise.
You can mention terms and conditions related to the payment and should not be concerned how the buyer is funding the property. It is buyer’s headache. Even if the property is valued low then it is by default that buyer will arrange for the difference amount. In short, you should be concerned that you should get 100% payment rather how the buyer is arranging the funds.
I have not checked the agreement therefore cannot comment with 100% conviction but your argument is weak and may not hold therefore token money cannot be forfeited.