Being a homeowner is almost everybody’s dream. A few decades ago, becoming a homeowner was quite hard. However, in the last two decades or so, banks have come forward with easier home loan terms. Today, it is possible for almost every person to avail of a home loan, provided certain criteria are met. However, there are certain conditions when availing of a home loan is not very easy, even today. 

Here are seven obstacles that a person trying to avail a home loan might face:

1. Rejections

Getting a home loan passed is not easy. An application could be rejected many times, sometimes due to low income levels, at other times because some important papers are not provided. Rejections could also be because the lender is not satisfied. To get your home loan approved, you have to do quite a bit of research, which can get tiring.

2. Non-refundable processing fees

When you apply for a home loan, banks charge a loan home loan processing fee  that can be 0.25% to 1% of your loan amount. If your loan application is rejected, you will not get this money back.

3. Getting less than the desired amount

You might want a higher amount than the bank will sanction. However, the bank will only sanction what it believes you are capable of returning. The bank will research your finances thoroughly – from your monthly salary to your other debts – and if it believes that you are not capable of returning the amount that you have applied for, it will sanction whatever it deems suitable. This can put a major spoke in your plans.

4. Difference in the property estimates

Banks have their own technical, financial, and legal personnel to evaluate a property. There could be a difference in the value that you assign to the property that you want to purchase (or build) and the value that the bank believes to be correct. In such cases, the bank will only offer the amount that it deems right. 

5. Changes in the rate of interest

The floating rate of interest can create hassles. While giving a loan, prime lending rate (PLR) is considered as a benchmark and the rate of interest depends on this benchmark. If you take a loan when the PLR was 13.5%, then your interest rate would be around 11%, and if the PLR increases to 14%, your interest rate will increase too.

6. Unbending loan criteria

Your EMI is set based on your monthly earnings at the time of availing the loan. If your income falls, or if you have no income (maybe because of job loss) it is almost impossible to persuade banks to reduce your home loan EMIs. This makes paying off debt quite hard.

7. Showing false income

Sometimes, when you don’t study the loan application process thoroughly, you could end up projecting a false income. The bank will usually see right through your deliberate or inadvertent mistakes. And if it believes that you have falsified your income levels, it will be nearly impossible for you to avail of a loan. To avoid this pitfall, be thorough and provide every little detail correctly.


Disclaimer: Copyright Kotak Mahindra Bank Ltd.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.