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Top 4 Challenges for Home Loans in India

Published on 2020

Though many financial institutions are offering property loans, people still struggle to find a great deal in the real estate industry in India. Here, in this article, we’ll provide you with an insight into the major challenges or problem you could experience when applying for a home loan. 

4 Challenges for Home Loans in India

Majority of people in India depend on property loans to build their dream house. But sadly, though it may seem simple when you look at the financial institution’s advertisement, getting such a loan isn’t so easy. As any loan borrower will tell you, the process is draining, both financially and emotionally. 

Here are the top four challenges that borrowers face while applying for home loans in India. 

  1. First-Stage Rejection

Most of the home loan applications don’t even clear the first stage of loan processing. Financial institutions reject most of the applications citing reasons such as lack of proper documents, insufficient income, age, among others. 

Hence, before you apply for the loan, it is highly advised to inquire about the eligibility criteria of the financial institute and compare it with your profile. Proceed further only if you meet most of the requirements of the bank, if not all. Moreover, make sure that you have each necessary document that the bank is asking for the loan application. 

  1. Non-refundable Processing Fee

You will be surprised to know that financial institutions often ask for 0.25% to 1% of the loan amount as processing fees. And, more often than not, these fees are non-refundable. In case the financial institute you have applied to says that it would return the fee if your loan application isn’t accepted, it’s better to get such a declaration legally documented. A verbal claim by the concerned authorities will not be of any use unless it’s properly documented. You need a confirmation in writing, which is enforceable. 

  1. Fixed vs Floating Interest Rate

Most borrowers are often confused when it comes to choosing a floating or fixed interest rate. Even post choosing a specific loan regime and using a budget search feature, you might still face difficulty due to the loan’s terms & conditions fine print. For instance, if you opt for a fixed interest rate regime, the terms & condition fine prints of the loan authorises the financial institution to change the interest rate even after every couple of years. This, therefore, makes things worse for you as a fixed-rate loan borrower. 

On the other hand, if the financial institution does not give you the advantage of reduced interest rates despite you opting for floating rate home loan, it would hold very little value. Hence, it is highly recommended to read the terms & conditions page carefully and clarify all your doubts before making the final deal. 

  1. Down Payment

Most of the financial institutions in India often ask the borrowers to deposit 10-20% of the applied loan amount as a down payment. For instance, if you’re applying for a loan of INR 20 lakhs, you will have to deposit INR 2 to 4 lakhs in advance as a down payment. Failing to do so will result in the rejection of your loan application. 

It’s generally wise to first check the financial institution’s down payment criteria before applying for the property loan and select the one that needs the lowest amount as a down payment.  

Conclusion

These were a few of the many challenges that people face. You can avoid these problems easily if you follow correct procedures, prepare sufficiently before applying for the loan and submit necessary documents. 

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