JOIN USKeep your documents in order:
Applying for a home loan requires documentation regarding the customer and the property.
The customer documentation typically revolves around KYC documents, bank statements, income statements, address proof, and proof of additional income( like rental, agriculture).
While the property documents for applying for the loan are generally, sale and construction agreements, proof of payment of margin money (bank will only fund up to 80% of the loan, the rest needs to be paid by the customer, this is known as margin money), property ownership documents and encumbrance certificates on the property, among others.
Check your credit history: Credit history of the consumer plays an important role in the bank deciding whether to sanction loans or not, also in cases where the customer scores are low, there may be a valid justification or reason around it, it’s better if the customer has necessary documentation to prove their point and keeps them ready if the banks need it.
In case credit history is poor, the customer should first work on improving the same, and apply for a loan after that.
Awareness around legal status of the property being bought: One of the most important criteria for sanctioning a property loan, is the legal status of the property in question. This is extremely critical for both the banks and the buyer, and hence one should be aware of the same before going to the banker. The bank does a detailed check on the property before giving a home loan which goes far beyond just ownership related legal checks which most buyers of property focus on.
The bank checks on encumbrances, property documents, sanction plans, construction plans, government body checks and clearances and tax paid receipts, along with ownership checks, these are mostly not carried out by buyers in a mutual agreement between the buyer and seller, and can lead to home loans on these properties getting rejected if the bank does not feel comfortable basis these documents.
Calculate your own eligibility or take a income pre-sanction: Understanding the methodology around how the bank will calculate your loan eligibility is important as one will get funded by the banks only up to the sanction amount. In our experience, lots of customer end up buying the property first and then realising that the bank may not be willing to give them the loan eligibility that they need. The bank will calculate debt burden ratio (DBR) before providing a loan.
It’s advisable that customer either do this calculation on their own, or better take an income pre-sanction from the bank upfront before deciding the property that they are looking to buy to ensure that expectation mismatch does not happen at a later date.
Manage buyer and seller availability for the loan process: In most home loan transaction, there are two parties involved, the buyer and the seller. In the home loan process, the banks look at interacting with both of them to ensure the process is carried out smoothly.
From the buyers end, one needs to ensure that they are available for discussion with the bankers, available for verification that the banks would carry out and be ready for the occasional trip to the bank to ensure agreements are signed or certain justification if required can be given. From the seller side, the banks would require to do a legal, technical check on the property which requires bankers to come to the property to evaluate the same. The banks also carry out valuations of the property in question which may require certain interactions with the seller as well.
(The author is Co-founder and CEO of Finance Buddha)