Your home loan application took 45 days to be approved and another 10 days before the money was disbursed. Your colleague’s loan got cleared in half the time, even though there was no significant difference between his income level or creditworthiness and yours. Worse, your colleague landed a better deal with a fractionally lower interest rate. Over the repayment term of 15 years, it could mean a tidy savings.
Where did you go wrong? You didn’t. It’s just that your colleague prepared and bargained better. Though banks and housing finance companies don’t disclose all the factors they take into account in approving a loan, the criteria are more than what most loan seekers know about.
What’s more, even the interest rates are not the same. A PSU or MNC worker will be offered a lower rate than one working for a small private organisation. While some factors are beyond an individual’s control, there are ways to ensure that your loan application is not rejected and that you wrangle a good financing deal for your dream house. Here’s a checklist of things to keep in mind:
Rates re negotiable
Lenders keep advertising their interest rates from time to time but in reality there is no such thing as a standard rate. What is advertised is only a “rack rate” which is open to negotiation. The cut-throat competition in the home loan market is your biggest weapon, which would help you beat down the interest rates being offered by different banks. Shortlist four or five banks and let them compete for your loan application. Remember, how much you will pay will depend on your ability to negotiate.
Processing fees refund
After you are able to bring down the interest rate to an acceptable level, negotiate the other charges, especially the processing fees. This is one charge that banks are willing to negotiate because they have control over it. You could extract an assurance that the processing fee will be refunded if your loan application was rejected. Get a written proof of such an assurance.
Do not over-reach
Before you apply, find out how much loan you are eligible for. Banks usually want that the EMI on the loan should not be more than 40% of your take-home income. But if you have other loans running (car, personal, consumer good), that could hamper your chances. Apart from you income, factors like the developer, location of the property, age of the building (in case of resale), or even whether the deal is being done through power of attorney, affect your eligibility. If the loan exceeds the eligibility, club the income of your spouse or parents.
Keep down payment ready
Banks fund only 80-85% of the stated value of the property and the borrower is expected to raise the balance from his own resources. If you have been saving for your house, you can make the upfront payment to the builder or owner right away. This speeds up the disbursal of your loan. Also, loans get approved quickly if the amount you require is well within your eligibility limits. So, try and save as much as possible for the down payment.
Lending banks and institutions have a list of builders and properties that are preapproved. If a builder gets pre-approved by a number of players, it speaks well of his property. That also means the loan application of customers buying from that builder will have a smooth sailing. The lender will only assess the repayment capacity of the borrower and not spend time inspecting the project site or verifying the credentials of the builder. “Go for a reputed builder if you want to avoid delays in the loan approval and sanction,” advis -es Harsh Roongta, CEO, Apnaloan.
Economies of scale
The more the merrier. If you bundle your loan application with those of some other customers in the same project, chances are that the bank will offer you a bet -ter deal. That’s because besides bringing in more business, the bank will have to spend less on verification. This can be especially powerful if the property is in the same building because that would reduce the legal and technical costs. The bank can then pass on the benefit to you, perhaps as reduced processing charges.
The month-end trick
This is a tricky but useful strategy. If you are buying from a reputed builder, negotiate the rates till the last week (23rd or 24th) of the month. Banks have monthly targets for their staff and as the month draws to an end, the sales agent will be willing to sweeten the deal to meet his target. However, this does not always work, especially if the property title or valuation is not clear.
It pays to be transparent. While filling up the application form, don’t withhold any relevant information. Give full details of borrowings (including credit cards) and your repayment record. The lender will anyway check with the Credit Information Bureau (India) about your credit record. So, come clean on your borrowings. If you have been a good customer and have paid all your bills on time, it may actually get you a lower rate. Says Rajiv Sabharwal, head, retail assets, ICICI Bank: “The only way of getting a faster approval is a good credit record and with all relevant documents in place.”
Good credit is not built in a day. It takes discipline to repair your credit and at least six months to get a good track record because this is the minimum period that banks ask for your bank account statement. If you have too many loans running alongside, regain control by consolidating them under one umbrella loan. The more the number of EMIs flowing out of your account every month, the lower your chances of getting another loan.
Same city helps
Though you can get a loan to buy property anywhere, it becomes easier if you live in the same city. You can address the lenders concerns quickly and easily.
—Rakesh Rai and Priya Kapoor