Avoid home loan rejection this way.

Real estate is the most coveted investment instrument in the country. Buying a home, whether for investment or residential purposes, can take years to materialise and given the prices, few can afford to pay the money upfront. In such situations, buyers inevitably turn to banks for home loans.

Although the norms for approving home loans have eased in the recent past, don't expect it to be a cake-walk. One small mistake can result in you merely dreaming of the house, and never actually owning it. 

We look at factors that can play a crucial role in getting your loan approved or rejected.

                         

BAD OR LOW CREDIT SCORE

You cannot build a house if the foundations are flimsy, right? When it comes to loan approvals, banks use a similar analogy. If you have a low credit score, you will be denied a home loan out rightly even if you fulfill all other conditions. Credit score is considered to be the most important factor by the banks while disbursing a loan. 

Credit score reflects a consumer's behavior towards the financial transactions. In some ways, it is a mirror to his financial habits and underwriters base their decision and develop risk-based pricing based on the credit score.


So, if a person has defaulted or delayed the payment on any kind of loan or credit cards, it will have a negative impact on the credit score. Other factors like being guarantor to a person who defaults on payment of his loan can affect your credit report too if you fail to repay his loan. So, be very sure before taking up the role of a guarantor. There are credit rating agencies like CIBIL, Experian Credit Information Corporation of India, Equifax Credit Information Services and High Mark Credit Information Services that provide credit score to individuals. Once you submit your loan application, the lender seeks a copy of your credit report from the bureau. They analyse this not only for the credit score, but also to review the extent of existing loans / credit cards, performance of ongoing and closed loans. All these go in to the final assessment of your loan application.

A credit score provided by CIBIL is a three-digit TransUnion score which is derived from the credit history found in credit information report (CIR). A CIR is an individual's credit payment history across loan types and credit institutions over a period of time. It ranges between 300 and 900. It indicates the probability of default of a borrower based on their credit history.

To maintain a healthy credit score, one should ensure timely dues payment and avoid taking too many unsecured loans as it may be considered negative. But if the damage is already done, you can work towards improving it slowly. 

INCORRECT PERSONAL DETAILS IN CREDIT REPORT

Your credit information report contains your personnel detail, so wrong information can lead to a mismatch between the details on your loan application and credit report and hence lead to your loan rejection. If there is any change in the personal details, you must update your lender so that it is reported to the credit information bureau and is reflected in your credit report. Any individual can get the credit report for a nominal fee from the credit bureaus.

However, it is important to check the report for anomalies like a credit card listed in your report but not owned by you, or a loan on their name which they had never taken. Prospective borrowers can also apply directly to the credit bureau for their credit report for a nominal fee. This allows you to review the facilities listed against your name, seek corrections if you spot any anomalies like a credit card listed in your report which is not yours and to know your bureau score. All bureaus have dispute resolution forms on their websites which aggrieved customers can fill and send with relevant identification documents.

REJECTION OF LOAN BY OTHER BANKS

Some people tend to apply to multiple banks at the same time. However, remember that if your loan is rejected from one bank then it can have an impact on your credit score and hence lead to the loan being rejected by other banks too. It is better to wait for the reply from one bank before applying to another so that you know why your loan is rejected and get the same rectified.

NEW OR UNSTABLE JOB

Since the repayment of loan is of utmost priority to the lender, they would like to ensure that you have timely repayment capabilities when he disburses the loan. In case of salaried person a steady flow of income is determined by the stability of job. Since repayment of home loans is normally sanctioned for 15-20 years, stability of income in future becomes a necessary criterion to be assessed at the time of loan sanction. For example, if the borrower has a contract of employment with just eight months left in it, it is natural for the lender to enquire if the contract has been renewed in the past or whether the borrower holds any professional qualifications which would give comfort that alternate employment would be forthcoming.

It is a similar story when it comes to changing jobs. While it may give the buyer a higher income level, it gives a negative impression to the lender. It is generally advised not to change your job if you are planning to take a home loan in the near future. In fact, the financial strength of the employing company is also considered as one of the factors for the evaluation of the application. People working in a proprietorship company, having less than 50 employees & not having provident fund facility, face issues in getting a home loan.

AGE FACTOR

Age is one of the most important factors considered by the lender while disbursing a loan. Typically, they put a minimum age bracket of 23-24 years and maximum limit of 60-65 years for loan applicants. Assuming a 22-year-old, who has been working for the last three years, applies for a home loan and the qualifying criterion for that lender is a minimum age of 23 years with at least two years of continuous work experience, the lender would in all probability turn down such an application.

APPLYING WITH RELATIVES OTHER THAN SPOUSE/PARENTS

If you want to get a home loan of a higher amount, clubbing the income of your spouse is a good option. But while banks allow clubbing of income of the spouse, father and son, the same does not extend to every family member. Some banks are skeptical of clubbing the income of the siblings because in case of a dispute, the EMI could be delayed. Clubbing the income with any other relative is not allowed. Also, a co applicant can't be a minor.

LOCATION OF THE PROPERTY

Banks also make their decision to disburse loans on the basis of the project's location. Take for instance, Noida Extension, where a number of projects suffered due to lack of clearance and acquisition disputes in 2011. As a result, a number of public sector banks stopped sanctioning fresh loan sanctions in the area, as per news reports. All lenders have limitations with the geographic locations. If the property is beyond such limit, the loan will get declined. The technical valuation of properties in remote locations may also be lesser than the purchase cost; banks do try to cover the risk of funding in an under-developed area on case-to-case basis.


UNSATISFACTORY EVALUATION OF THE PROPERTY

You must ensure that you are buying a house at a price which is close to the market price. This is important because the bank does the valuation of the property itself and will give a loan of upto 80% of the property value after considering other factors like your repayment abilities.

UNCLEAR PROPERTY TITLE
In the event that the property does not have a clear and marketable title, or there are issues connected to the approvals from the relevant authorities, normally banks or home finance companies keep the loan sanction letter valid till the customer finds another property which has clear title and approval. So, before buying a property you must ensure that it is not involved in any dispute.

LACK OF REPAYMENT CAPABILITIES

Banks ascertain your repayment capabilities before disbursing the loan. It depends on the disposable income that is left in your hand after paying off existing EMIs. Banks generally give a loan which amounts to an EMI of upto 50% of the disposable monthly income. So, first assess your repayment capabilities before applying for a loan.

Source: Secondary

Tips for new home buyers

Are you hunting for a home? A home loan helps you achieve peace of mind by providing you with one of the basic necessities of life – a roof over your head. But if you don’t exercise prudence wisely and take extra care while going through the process, a home loan can rob you of that very peace of mind. Here are a few quick tips that you should know before climbing onto the property ladder. These key tips could assist you choose the right home loan and save some money at the same time.

Market Research – Searching for the perfect home loan may seem hard work but if you do your homework and take your time, the whole thing will be a lot easier. Those hoping to climb onto the property ladder may be in for a bit of a shock – loan options are vast and can at first seem a little overwhelming. The key to getting the best deal on your loan – and that means the most sensible option, as well as the cheapest – is being armed with as much information as possible… so be prepared! Clear your doubts regarding the loan scheme before finalizing on anything.

Calculate the EMI – Estimate the amount of EMI that you can afford beforehand. Keep in mind your income and financial commitments to determine the amount of EMI you can pay before applying for a loan. Don’t make abrupt decisions on this one because if you get delayed on making repayments on time then it could be burdensome for you to pay penalties if you don’t have a stable income source. So, keep in mind the other aspects also that are worth to consider before you agree to take up the new loan and you’re your decision wisely.

Eligibility criterion – Having documents ready before you apply for a loan can speed up loan approval. A lender will consider your credit history; you must make sure you have paid all your credit cards and other loans timely to score good on eligibility. And if you have a clean record in your credit history for making payments on time, then you can use it as an asset when applying for a loan. Also, scrutinize the duration of your loan. If you prefer a long tenure loan then interest rate would be comparatively high and you will be bound to pay more overall.

Borrowing costs – When you apply for a loan, it’s mandatory to know about other additional charges that the lenders would add to the current home loan schemes. The lender may impose a range of administrative and service charges or processing fees. These additional charges will be considered under the sanctioned amount in your name and not considered under the amount that you take home. Before you agree any deal, you should examine the other charges that the lenders put into the scheme.

Study the fine print – Make sure you thoroughly read the home loan agreement documents with your bank or financial institutions. The lenders may acknowledge certain points to you but whatever is written on the paper will only be considered at the end. So, it would be appreciated to contribute some time on reading the documents to avoid any hassles later on. Get your queries cleared, if any, related to terms and conditions mentioned in the loan before signing your documents.

Learn more about credit history and its impact on your credit score at www.cibilconsultants.com

Source- Secondary

Home loan: Fixed vs floating rates

Investing in a financial product, whether it is a home loan, involves your hard earned money. So it is important that you take time off to look at various aspects before rushing in to something. While applying for a home loan, the prior thing that will bother you is whether to choose fixed interest rate or floating interest rate. Let us see which option is worth for you?

Fixed versus floating dilemma

Home loan consumers often find themselves in a dilemma when it comes to choosing between fixed and floating interest rates. With fixed interest rate loans, the interest rate and hence the EMI remains fixed, whereas in floating rate loans, the interest rate or the tenure may move up and down. Nobody can predict which way interest rates will move and hence it all boils down to personal choice, cash flows and appetite for risk when it comes to choosing between the two.

In most cases you will also be given the option to switch from fixed to floating rates and vice versa. However, you will be charged for every switch that you make during the tenure of your loan. If you believe in taking risks with the hope that you will benefit when interest rates fall, you can opt for floating interest rates or else you can happily settle for a fixed repayment schedule.

Pros and Cons of Fixed Interest Rates:      

Since home loans demands a long term commitment in comparison to other loans, a fixed interest rate convey a sense of certainty in terms of loan repayment. People who are good at budgeting can get a clear vision of their EMI liabilities if they select for a fixed-rate home loan.

The major drawback with fixed interest rates is that they are usually 1 – 2.5 percentage points higher than the floating rate home loan. Secondly, if for any reason the interest rate decreases, the fixed rate home loan doesn’t get the benefit of reduced rates and the borrower has to repay the same amount every time. Another area of concern is whether the fixed rate home loan is fixed for the entire tenure or only for a few years. This has to be cross-checked with the bank while taking the home loan.

Pros and Cons of Floating Interest Rates:

Floating interest rate varies with market conditions and interest rates are bounded to a base rate and a floating element thereof. So, if the base rate varies the floating interest rate also varies. Although floating interest rates are cheaper than fixed interest rates, but the nature of monthly installments is uneven. This makes it difficult to budget with floating interest rate home loans.

Market Behaviour:  

Recently, fixed rate loans have gained popularity in India. Many financial institutions and banks are now engaging applicants utilizing fixed interest rate schemes. ICICI Bank has initiated a scheme proposing home loans up to 10 years at a fixed rate of up to 10.25%, while Citibank offers a fixed rate of 10.1% till September 2015.

Experts agree on the fact floating interest rates are a better option if the economic scenario promises a fall in interest rates in the near future. For a short term loans opting for a fixed interest rate would be beneficial whereas floating interest rate is recommended for people taking a home loan for a long tenure at this given time.

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Source- Secondary

Enhance your home loan eligibility

If you are looking for the right home loan to buy your dream house, keep in mind, loan eligibility concludes whether your loan application will be approved or not and if approved, the amount of loan that is likely to be sanctioned. It is constituted on your credit worthiness, which rely on income and debt repayment capacity. Although a good credit history and a stable income level are the primary sources of your home loan eligibility. You can boost your loan eligibility by following these simple steps:

Combining Incomes: 

As income is a primary norm, you could consider making a joint application while combining the incomes of other family members which will have a positive impact on your repayment capacity. Any other earning family member including spouse, sibling or parent can become a co-applicant for the loan. In such cases, as the clubbed income level would be higher, the loan eligibility would also be higher.

Repaying other outstanding loans:

If you have other outstanding loan liabilities, affects the loan eligibility drastically as the EMIs being paid towards those loans are deducted from the monthly repayment capacity. Lenders can easily find out your existing debt level. As per to enhance your eligibility, it is advisable to reduce your other outstanding loan before applying for a home loan.

Go for step up loan:

Step-up loan take into account the increase in incomes of individual over the period of loan repayment. This type of a home loan has lower EMI in the beginning which is increased in a step wise manner with the borrower’s income over time. In this case, the loan eligibility is calculated on the basis of the possibility of higher income that the current earnings which can increase the amount substantially.

Mutual relationship:

If you enjoy a long-standing relationship with the lender and have a good credit history, you could easily negotiate for a lower interest rate and higher loan eligibility. 

Long tenure:

The eligibility is determined based upon repayment capacity of the applicant on a monthly basis. If you increase the tenure the EMI of loan reduces and hence the applicant can now borrow much amount with the same monthly repayment capacity. However, it will increase the rate of interest levied on a longer duration.

When you attempt to improve the total amount that you are eligible for taking a home loan, it has to be based on actual repayment capacity. While you avail loans, ensure to repay your dues on time as to ignore the debt trap.

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Source-secondary

Beware First-time home buyers!

Buying your dream home is a massive investment of one’s lifetime and requires tremendous research about the property, the builder, the policies etc. Taking a home loan is a long term commitment; it becomes crucial that the buyer doesn’t get carried away by lucrative deals and offers. You may end up paying more or getting inefficient service if you choose the wrong scheme or lender for your home loan. There are many mistakes committed by first-time home loan borrowers, which can prove to be destructive for their finances.

Here are the top 5 mistakes committed while taking a home loan:

Avoid selecting your lender first

Most people prefer to go to banks calculate their eligibility as per to know whether their finances will be adequate or not for a loan. Mostly, they are deceived, since the lenders may offer some thriving deals to make money. It’s beneficial to check your eligibility factor online and know easily how much approximate amount of loan you are eligible for.

Borrowing beyond means

Obtaining money more than their income source allows is another misstep which most people make. Banks grant the loan on the basis of your eligibility, income and liabilities, but they don’t scrutinize your existing expenses. However, if your current expenses are immense, despite of that, if you take a loan which results in high EMI payment, you may end up in a bad debt trap. It is always better to lower your budget if your current income and expenses levels are not favourable.

Opting a false loan scheme

In the current economy times, banks are initiating different overwhelming schemes for home loans. Remember, there are some loan schemes in which the rate of interest remains fixed for the initial years and thereafter the loan becomes a floating one, which is linked to the bank’s base rate or prime lending rate. People choosing such schemes should be careful to understand if they have the scope to keep the EMI or tenure changes that will be unveiled when the floating rates kick in, which can be considerably higher! A lack of understanding over a loan scheme or a lack of repaying capacity when higher interest rate kicks in can only result in difficulty in servicing the loan!

Ignoring to review cost

It is always advisable to bargain regarding the interest rates, EMIs, etc. Since, apart from your income and payment structure potential, your negotiation skills will also be considered. And as a prudent loaner, get all the information about the processing fees, legal charges and other hidden costs before deciding on the loan amount.

Neglecting insurance for your home loan

Most borrowers do not recognize this risk, in case, any demise happens to you unfortunately during the tenure of the loan. The home loan that you have taken should not be a burden on your family. By insuring your home loan with a life insurance and a critical illness policy you can benefit your family members with a home and not a home loan. In case of the death of the borrower, the life insurance cover can provide the family with a monetary cover. And for the critical illness policy, if in case the borrower is not able to earn due to any critical illness, this policy will provide financial assistance wherein the interest amounts can be paid.

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Source-secondary

Hidden costs disclosed!

While availing the home loan, most of us forget to factor in the hidden costs involved. Customers normally notice these fees or charges once the deal is done and by then, it is too late. These costs can influence the total cost of the product. The benefit of knowing about hidden costs involved is that these vary from one financial entity in the market to another and some institutions may wave these completely, if you negotiate. Let’s take a sneak peek at some of the additional costs that is borne by the borrower but not mentioned to him clearly at the sanctioning of the loan.

Processing Fee: A valid amount of money is charged by all housing finance companies which comprises a processing fee and other administrative charges. The specific amount for this fee differs from one bank to another however, is less for public sector institutions in comparison to private lenders.

Legal Valuation Fee: Before sanctioning the home loan, all housing finance companies carry out a thorough legal verification of the property. The borrower has to bear the charges as legal fees of the lawyer undertaking this kind of verification.

Interest on term before EMI initiate: There lies a certain division between the disbursement of the first loan installment and start of the EMI. During this period, definite interest is imposed by a financier which is termed as the broken period interest.

Prepayment Penalty: If the borrower chooses to prepay the home loan before the tenure gets completed, the bank will charge a prepayment penalty from the borrower. Plus, a service tax is also imposed on the prepayment penalty. But, as per RBI, this clause has been abandoned for floating interest rate home loans

Rescheduling fee: When the interest rate gets altered by the bank or in case the borrower determines to prepay certain portion of the outstanding loan amount. The home loan tenure and EMI structure has to be rescheduled to match the prevailing conditions, the borrower has to borne a rescheduling charge assessed by the bank.

Conversion Charges: The bank charges a certain amount, when a borrower decides to convert the home loan from a fixed rate type to a floating rate type or vice versa. Additionally, a service tax is levied as applicable.

Miscellaneous Fees: The banks may charge the customer several types of miscellaneous fees that are not mentioned earlier. Such fees incorporate charges for obtaining a copy statement of account and copy of original documents that have been submitted by the borrower while availing the loan.

So, ask the financial institution to give you details on the fees and charges involved, read these carefully and then take your decision accordingly.

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Source- Secondary

Joining a co-applicant in a home loan!

Are you aiming to avail a home loan? Will you like to relish substantial profits from it? Here’s your answer – joining hands for a bigger home loan. You can instantly apply for joint home loan by simply adding a co-applicant or co-borrower in your application of home loan. Let’s explore some terms about these loans which banks specify when co-applicants are added.

Loan eligibility

All banks allow two or more persons to jointly apply for a home loan. By applying along with a co-applicant, your eligibility increases and as a result, you can avail a higher loan amount. However, banks specify that only people with certain specified relationships like father and son, husband and wife, brothers are permitted to apply as co-applicants. Beyond these, other relationships are not permitted as co-applicants. Moreover, the co-applicant needs to have a regular source of income.

Between a co-owner and co-applicant

Co-applicant is a person who applies along with the borrower for a loan. A co-borrower along with the primary borrower accepts responsibility for repaying a debt. Infact, from a bank perspective, co-owners of a property should necessarily be co-applicants.

Husband and wife

One can include one’s spouse as a co-applicant for a home loan. His or her income will be added for determining the loan eligibility. The maximum tenure of the loan is determined based on the retirement age of the older partner. As per bank aspects, this is an ideal situation to have the husband/wife as co-applicant.

Father and son

The terms relevant to a father and son being co-applicants are thoroughly clear, if the applicant is the only son, he can jointly apply with his father with both the incomes being considered. The property should be in their names jointly and it does not matter who the main owner is. This is because in any case the son is the legal heir of the father’s property.

In case a person has two or more sons and if he wants to apply jointly with one of them, he should not be the main owner of the property. This is because, on his death, his children should inherit the property jointly and may cause an inheritance dispute. The father may only be taken as co-applicant and his income may be considered for the loan. He may be a co-owner or not own the property at all.

Unmarried daughter and father

An unmarried daughter can apply jointly with her father. However, the property should only be in the name of the daughter and the income of the father should not be considered. This is to avoid any legal complications on the subsequent marriage of the applicant.

Brothers and sisters

An applicant may apply with his brother provided they are currently staying together, and intend to do so in the new property as well. However, a brother cannot apply with his sister. Also, an applicant cannot have her sister as a co-applicant.

Documents

The documents needed for joint home loans are the same as any other home loan. The only difference is that here documents are needed from both applicant and co-applicant. General home loan documents needed are identity proof, address proof, salary slips and bank statements.

Taxation benefits

We all use home loans to save tax. Joint home loan tax benefits are an extension to the tax exemptions provided by home loans. In the case of joint home loans, applicant as well as co-applicant can enjoy tax benefit for the contributions towards the loan.

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Source-secondary

Paying home loan has beome easier! See how?

Buying a home is not merely a financial decision. It is an emotional decision too. Are you planning to shed the weight sooner rather than later of home loan? It may be prudent to do so as you become free of EMIs most important benefit of closing your home loan early is obvious – you become free of EMIs and heavy loan debt. It requires discipline and planning, but it brings you much closer to the proud day on which your bank hands you the ownership papers of your fully paid-up house. Have a look on the simple steps to prepay your loan easily and save money for the future ahead.

Just pay more

Start playing with mortgage calculators and see how adding a little payment to your principal here and there can shorten the length of your loan. If you pay a little more principal, you get a bonus. The lower your principal gets, the more every payment from then on is applied to principal, as less goes to cover interest expense. When you pay extra, make sure the extra is applied to the principal balance, not just set aside for the next payment. And before you make extra payments, read your contract and make sure you won’t have to pay prepayment penalties.

Consider your financial plan

With the financial safety net in place, it is time to build the corpus that you will need to close your home loan early. You should begin by taking a close look at all the ways in which you lose money each month. Evaluate the investments and the returns produce on them. Once you are assure that your investments are sufficient to take of financial security ahead. So, you can transfer the surplus to pay off your home loan debt.

Switch to partial payments

Many banks permit their customers to make partial payments of home loan in a year. If you are salaried, you can divert your salary hikes, yearly bonuses or incentives towards your repayments. Businessmen can similarly use any extra profits towards paying off the loan. Check if your bank will set up a biweekly payment plan. Some banks do it free; others charge. Ask the bank to credit extra payments toward principal so you save more on interest expense. Some banks set aside extra payments until the end of the year.

Cut down on unnecessary expenses

Want to pay off your home loan financial debt earlier as to lessen the financial burden every month. Try to cut your extra expenditures wherever possible and use that money to prepay your home loan, You may have to let go holidaying or some unnecessary purchases as they can backfire hugely. However, make sure that the cost attached to prepayment of home loan, if any, in the form of a penalty does not nullify the benefits.
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Source Secondary

Revealance of the priority in which the debts should be paid

Easy availability of loans has made our life much easier. It’s convenient way to acquire life’s necessities. But, wait! If loans has made our life so much easier, then why people at times fail to meet the deadlines which are making their life difficult? And furthermore, it also puts you under pressure as a portion of your monthly income is truncated towards paying the EMI. If planned well, you can actually reduce your burden by shedding your liability. Now, if you have several debts to clear, aim to prioritize loan repayments to clear the most expensive ones first.

Personal loans comes first

Being unsecured loans by nature, are offered to you on the basis of good credit history or a sound income stream. Start by attacking your most expensive debt. Simply put your personal loan as bad debt, so pay it off as soon as you can. Prioritize the obligations with the highest interest rates. Paying off the highest, most toxic debt will free you up sooner and help you pay less in the long run. Plus, it will take a load off of your mind.

Unproductive loans

The other loan debts does not involve tax benefits like loan against property, gold loans, loan against insurance policies, fixed deposits and auto loan. You should repay these loans as per the interest rates. Gold loans come at comparatively lower interest rates! Loans against insurance policies, fixed deposits attract less interest rate compared to gold loans and loans against property.  Such loans captivate less interest rate in comparison to personal loans.
Finish up with home loan

Home loans are the most popular debt in India. You can enjoy tax benefits on repayments of a home loan. Home loan consumers often find themselves in a dilemma when it comes to choosing between fixed and floating interest rates. Nobody can predict which way interest rates will move and hence it all boils down to personal choice, cash flows and appetite for risk. However, you will be charged for every switch that you make during the tenure of your loan. You can prepay your loan fully or partially, depending on the terms of your loan. However, do remember that the cost attached to paying off your loan early, if any, in the structure of penalty does not restrict the benefits.
By following the above mentioned step by step priorities, you can actually enjoy the ecstasy of debt-free life. At times, you may find some investments yielding higher interest rate as compared to the interest rate being paid on the existing debt. While making any financial decision, do consider the advantages and disadvantages of either to go for paying off an existing debt or an investment.
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Source Secondary

Whether to purchase a home with cash versus obtaining finance through mortgage.

To be a homeowner of your dream house is not merely a financial decision. It is an emotional decision too. That’s why in a number of cases, despite fixing a budget, most people tend to stretch themselves to own a house that is beyond their budget.  It’s probable to think that buying a home with cash – or sinking as much cash as possible into your home to avoid the enormous debt linked with a mortgage, is the wise choice for your good financial mileage.

But it involves a lot of consideration whether to purchase a home with cash versus obtaining finance through mortgage.

Purchasing a house with cash is a very legitimate productive investment as it eliminates the need to pay interest on the loan and closing costs. In a current market scenario, paying all can also make your purchase offer more attractive to sellers as they don’t have to concern about a buyer falling out due to financing being denied. A cash home purchase also has the flexibility of closing faster than one requiring financing, which could be attractive to a seller. Those benefits to the seller shouldn’t come without a price.  Also, a cash buyer’s home is not leveraged, which allows a homeowner to sell the house as per his convenience.

Shouldering responsibilities with mortgage

At some point you would like to own a house. Then why not do it now? Yes, buying a house on a home loan, if you can afford the EMIs, makes more sense than paying massive cash. How? There are obvious benefits. Firstly, by buying a house in which you live, you are creating an asset with the easy to pay EMIs that you pay; on the other hand, paying complete cash is painstakingly as it involves your entire life money and liquidating huge investments. Moreover, you can enjoy tax benefits on repayments of a home loan. But remember that no matter how tempting it may be, don’t liquidate all your investments to purchase that dream home. Once you moved in, you will still need to go on living; in fact, if you move into a better home, you may seek a better standard of living and therefore, need more regular spending money. Further, you still need to service your insurance policies and subscribe to tax saving investments. You may be needing money for unforeseen emergencies that are not covered by insurance.

The Conclusion

The best advice when considering which option makes the most sense is to opt for the choice that gives you the satisfaction for your entire life. Also, ask yourself which will provide the greater return on your investment.

If you decide to purchase a house with a loan, make sure you can easily afford the principal, interest, property taxes, homeowners insurance, homeowner association and other fees each month. And no matter how you pay for a house, make sure to have an emergency savings account of expenses in case your personal economy declines and you need a financial safeguard.
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Source:  Secondary

Joining hands worth for bigger loans

Due to the very nature of a home loan, which entails a large sum of money and long repayment tenure, a co-applicant works out to be a relatively significant corpus. Most home loan borrowers find it a daunting thought to imagining the way in which this huge burden of amount could in some way be reduced. Remember, your dear ones can commit you more than emotional support when you decide to go in a home loan..

Every lender grants two or more persons to jointly apply for a home loan. By applying along with a co-applicant, your eligibility increases and you can avail a higher loan amount. However, only people with certain specified relationships like father and son, husband and wife, brothers are authorized to apply as co-applicants. Besides these, other relationships are not allowed as co-applicants. Furthermore, the co-applicant requires having a regular source of income. All co-applicants are not enforced to co-own the property but if there are co-owners in a property then all of them need to be co-applicants. While choosing a co-applicant, confirm that his credit history is good with no loan debts.

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Source: Secondary

Home Loan Closure Adversely Impact CIBIL Score! Why?

Home Loan is a secured loan and it impacts your CIBIL Score positively i.e. after availaing Home Loan, your CIBIL Score will increase because of its secured nature. Contrary to popular belief, closure of Home Loan negatively impact CIBIL Score. Let’s understand why

Recently Ramesh cleared my Home Loan and he was very happy about this fact but this happiness was short lived. It is very important to check that your Home Loan account is closed by lender in CIBIL Score database after Home Loan is closed. When he checked my CIBIL score, it was a shocker because his CIBIL score reduced by 12 points after Home Loan Closure. He was expecting improvement in my CIBIL Score as he cleared huge debt of Home Loan.

When he studied in detail, he observed following reasons for drop in CIBIL Score post Home Loan Closure: 

1.  Question mark on Future Re-Payment Capability:

During Home Loan tenure, we pay regular EMI and it reiterate our re-payment capability every month but after Home Loan Closure CIBIL does not have any secured parameter to check re-payment capability. You must be wondering what about credit card payment. Credit card is un-secured loan/credit and has limited positive impact on CIBIL Score even in case of timely payments but has huge negative impact on CIBIL Score in case of even single default of small amount.

2. Reduced Credit Worthiness:

In laymen term credit worthiness of individual is magnitude of risk which a lender is ready to take on individual i.e. max credit he is willing to offer. Home loan increase credit worthiness many fold but after Home Loan Closure Credit Worthiness is back to square one thus lower the CIBIL Score.

3. Secured Loan in Credit Portfolio:

Any secured loan like Home Loan in credit portfolio improve CIBIL Score thus Home Loan Closure takes away crucial points from CIBIL Score. Personal Loan and Car Loan are unsecured loans and negatively impact CIBIL Score.

4. Lender’s Negative Outlook:

Though last point has nothing to do with CIBIL Score directly but as the Average duration of any Home Loan in India is 7-8 Years and if you are closing your Home Loan much before 8 years then there is a probability that you might face difficulty in availing 2nd Home Loan in future. Reason bank borrow money at a cost and any pre-closure/pre-payment is liability for bank. If money remain idle due to low credit take off then its a loss for bank. Therefore besides CIBIL Score, pre closure of Home Loan too early can impact future credit worthiness despite good CIBIL Score.

It's better to be debt free as early as possible because of uncertain economic conditions, unstable job market and forced early retirement even if there is slight negative impact on CIBIL Score it’s fine.
Visit- www.cibilconsultants.com
Source: Secondary

Make Sure Your Home Loan Proposal Is Not Rejected

As a young, upwardly mobile professional working as a finance officer with a top retail company, 35-year-old Megha Agarwal was confident that her home loan application would be cleared within days. However, nearly two months ago, she was turned down.

"I had a decent salary and repaying capacity, so I was baffled. On questioning the decision, I found out that the bank had turned me down because I had failed to pay some of my credit card bills on time," she says. Unfortunately for Agarwal, this rejection may prompt other banks to take the same decision since it will be considered a red flag in her credit report.

Had she taken the trouble to check her credit rating before applying for the loan, she would have saved herself this trouble. To help potential home loan customers avoid a similar fate, here's a list of the potential grounds for rejection. Stability quotient According to Pankaaj Maalde, head, financial planning at Apnapaisa.com, the first factor that banks consider is the repayment capacity of the borrower.

"So, if his salary package is not adequate, the loan application will be rejected," he says. Other assets, such as property or fixed deposits, are also taken into consideration while ascertaining the financial stability of the borrower. Apart from this, banks factor in a customer's job stability—is his employment of a permanent nature or has he job-hopped too often?

This is the reason most institutions insist on bank statements for at least six months or salary slips for 3-6 months. To be on the safe side, it is advisable to hang on to your job for at least a year if you are planning to apply for a home loan. If you are servicing any other loans, these are also taken into consideration since they will have a bearing on an individual's repayment capacity.

In other words, if you have a car loan and a personal loan in your name, your current loan eligibility will come down and your home loan application is likely to be rejected. Personal profile According to experts, age and credit history play equally important roles in evaluating loan applications. "The age of the borrower is a crucial factor and most banks ensure that all the EMIs can be paid by him during the earning phase. So, a person who is 45 years old or above will find it difficult to bag a loan with a long tenure, say, for 20 years," says Maalde.

In such a scenario, you can try seeking a loan with a shorter tenure, provided your salary can handle the higher EMI outgo. "If a borrower has defaulted on servicing previous loans, his current loan application is likely to be rejected," adds Maalde.

According to him, the Credit Information Bureau of India Limited (Cibil) report is the first port of call for every lender.

The report keeps track of your entire credit. While defaults lead to serious repercussions, a good report—and, hence, a good credit score—can help you land a sweeter loan deal.

"One also needs to be careful before agreeing to act as a guarantor for another person. This is because any default by the original borrower will also affect a guarantor's score," cautions Maalde.

The same logic applies while applying for a joint loan. Make sure that your co-borrower has a good credit score before you decide to join hands. Paper trail According to RK Bansal, executive director, IDBI Bank, the title of the property has led to many a loan application being junked.

"The buyer often has no clue as far as the details of the property are concerned. However, the bank exercises due diligence to determine if the title of the property and related documents are in order since these guarantee the legality of a project. If the bank or investigation agency finds any discrepancies in the title, it will reject the loan application," says Bansal.

Moreover, blacklisted projects and/or developers could also be the reason for loan rejection.

Experts point out that these checks not only safeguard the bank's interest, but also protect borrowers from legal hassles.
                    

  

Property detail The last factor to be considered is the age of the property in question. If it was constructed over 30 years ago, banks will be sceptical about furnishing a loan to fund its purchase. In the relatively rare instances where such applications are entertained, the borrower may not bag the entire loan amount sought. This is because the banks would want to limit their exposure given the likelihood of a structural collapse in the future. Finally, make sure you are not impacted by association. If you live with a loan defaulter, be it a tenant, landlord or a family member, chances are that your residential address is on the watchlist.

This could prompt a bank to turn down your loan application. The solution, again, is to check your credit report before applying for a loan. If you are facing this problem, take up the matter with the bank you are keen to take the loan from, and establish that you don't have a personal relationship with the defaulter. In case a family member is involved, you will need to prove that he/she is not dependent on you.

Visit- www.cibilconsultants.com

Source: Secondary

Home Loan from Housing Finance Company

1. Higher Loan to Value Ratio: This is the biggest plus point for a Housing Finance Company. As HFC is not governed by RBI therefore they can include stamp duty and registration charges towards the cost of the property. Let’s understand from an example if a person is buying a property worth Rs 100. The stamp duty and registration cost of the property are Rs 6 i.e. 6% (Average). In this case, total cost of the property is Rs 106. Depending on my Home Loan Eligibility, Bank will approve LTV of 80% on Rs 100 i.e. Rs 80 as bank will not include Rs 6 towards the cost of a property. In short, he avail loan from a bank, he have to pool in Rs 26 from his pocket and his effective loan to value ratio is 75.47%.

Considering, he avail Home Loan from Housing Finance Company. In this case cost of property for Home Loan will be considered as Rs 106 and Loan to Value ratio of 80% effectively means that he can avail Home Loan of 80% of Rs 106 i.e. Rs 84.8. In this case, he have to pool only Rs 21.2 from my pocket. For simplicity purpose, he explained with an example of Rs 100 but it will be substantial amount considering the High Value of Home Loan. To summarize, Own contribution in case of Home Loan from Housing Finance Company is lower compared to bank thus higher home loan value.

2. Tie up with builders: Builders also deserve equal credit for the success of Housing Finance Company. It’s a win-win situation for both the parties as HFC’s offer higher commission to builders, are bit lenient on the legal process and most importantly, offer subvention schemes. Banks cannot offer subvention schemes due to strict RBI guidelines. Builders push loan from HFC very hard especially small  builders. USP is Pre Approved Project, therefore, minimum documentation and hassle free processing. Buyer is not able to understand the disadvantages of this trap. Builders de-sell, banks or Home loan providers who have not approved his project. As a thumb rule, you should never invest in a project which is not approved by at least 5-6 Home Loan Providers including 2-3 Banks. Buyers fail to understand that HFC’s are very lenient on Legal Check process therefore they have to be careful. Any project which is not approved by any of the banks and only by HFC/s is a big NO. The strategy of the builder is to get the project pre-approved at the time of launch and then there is a large scale deviation from approved layout plan. Banks don’t approve such projects.

3. Higher Home Loan Eligibility: A Housing Finance Company is a bit lenient in fixing the Home Loan Eligibility depending on the income, liabilities, risk assessment etc. As mentioned there is high pressure to re-deploy the funds due to high cost. Moreover, they have to compete with big boys. As a thumb rule, you can expect 10% more Home Loan Eligibility through Housing Finance Company compared to Banks. It’s a big incentive for the borrower as it means less burden on their pocket.

4. Self Employed & Businessmen: In India, we suffer from the colonial mindset of being a Servant. In Hindi, Private Job is called “Naukri” and though we don’t like but an employee is “Naukar”. We prefer “Naukri” over entrepreneurship because of steady income. The same mindset is a roadblock at the time of availing loan. It is very difficult for self-employed and small businessman to avail Home Loan. Loan requirements are stringent compared to Salaried class. At the same time, Housing Finance Company is a bit lenient in terms of calculation and consideration towards business income of non-salaried class. It is observed that non-salaried class i.e. self-employed and small businessman prefers Housing Finance Company for Home Loan requirement.

5. Low weightage to CIBIL Score: A Housing Finance Company especially small HFC’s are lenient on CIBIL score consideration. Seen cases wherein people with CIBIL Score of 700 received Home Loan approval. Whereas with banks score of less than 775 means end of the dream to own a house. This point is very subjective and depends on case to case basis. There is no general rule, but normally HFC’s are also bit lenient on CIBIL Score requirement. The only word of caution is that Many people with low CIBIL score paid a commission of 5% – 10% of Home Loan value to DSA to get Home Loan approved. It’s an unethical practice. Please note that DSA’s of HFC’s take undue advantage of the borrowers. They can’t influence even 0.1% of Home Loan Process. Always deal with a responsible employee of Bank / Housing Finance Company to process Home Loan. You may utilize the services of DSA only for the operational part.

To summarize, Selection between Bank and Housing Finance Company is a sort of prisoner’s dilemma. By being lenient on Home Loan process, a Housing Finance Company is doing more harm to a borrower than good. Whereas borrower perceive it otherwise. Because of this reason, you may observe that Home Loan default is more common among HFC’s Borrower compared to Big banks. Risk Assessment of a borrower should be non-negotiable. From borrower’s perspective, it better that Loan is rejected at initial stages instead of EMI default at later stages. It is always suggest buying a property with min 40% self-contribution.

Visit- http://www.cibilconsultants.com

Source-secondary

How to get fit for a home loan?

Know what you can afford
When it comes to Home Loan before thinking of putting up an offer on your property. You shall receive a pre-qualification certificate once the process of pre-qualification is complete, this shall clarify the amount you could lend from the bank. Once you are aware of the amount, you can check the rates and then negotiate the price with possible sellers.

Know your credit scores and credit ratings
This shall give you a fair amount of understanding on what kind of loan you shall qualify for and how you could choose the best bank for yourself for a Home Loan.

Know your Credit History
Every lending amount transaction is tracked by a bank/lender and reported to the Credit bureaus who keep a track of all the lenders on one report which is also called Credit report. This report is a snapshot of all your credit history i.e. all your lending transactions and your repayments on the same. It shows the numbers of dues you have to pay in comparison to the amount you have borrowed.

There are pre-approved mortgages. If you have a good credit rating and your credit history doesn't have any kind of outstanding dues, the lender might give you an upfront pre-approved mortgage. Having a consistent and good credit rating can save a lot of money and time when you need to buy a house.

Source: Secondary

Are home loans new risk area for banks?

Banks are getting more careful in disbursing home loans – picking people with higher credit scores, for example – as property prices rise to unsustainable levels.

“Banks have become prudent and are looking at improving the health of their portfolio,” said Arun Thukral, managing director, Credit Information Bureau (India) Ltd, or Cibil.

“Who they lend to has also seen a major shift,” he said. “Earlier, they were lending to a person with a Cibil credit score of 600-700 to buy a house. Today, 60% of the home loans are given to people who have a score of at least 800.”

Indians are getting more leveraged than they were a decade back as salary increases have not kept pace with spike in home prices, burdening them with larger monthly loan payments. Experts fear that a more leveraged consumer, coupled with inflated home prices, can pose a risk to banks’ balance sheets.

Home prices in the metros have doubled in the last five years despite an economic downturn, according to data released by the National Housing Bank.

“The business is therefore prone to asset quality pressures, particularly if collateral values of the two most popular products – residential mortgage and gold loans – were to fall significantly,” said Ananda Bhoumik, analyst, India Ratings & Research.

Indian banks have changed gears in recent past, sharpening focus on retail loans as credit off-take on the corporate side remains subdued and uncertain. As such, consumer loans are considered a safer option as corporate bad loans soar in the sluggish economy. But there’s no undermining the risk here, too.

“Banks will have to recognise that retail credit comes with its own risks, exposing them to individuals in large volumes as against one corporate loan. The whole appraisal process and risk underwriting process has to recognise that,” said Satish Mehta, co-founder and director at Credexpert, a credit counselling company.

Though the mortgage-to-gross domestic product ratio remains low at 7% in India, most of the loan amount is skewed towards urban India. While no one expects property or gold prices to come crashing down any time soon, credit bureaus recognise the systemic risk.

“If the price of the collateral falls, then the risk that banks are carrying definitely goes up,” said Mohan Jayaraman, managing director at Experian Credit Information Company of India Pvt Ltd. “Due to this, many mortgage lenders are also getting into the theme of saying that they will do smaller ticket lending and the whole affordable housing thing is being taken more seriously now.”

Source: Secondary