5 Mistakes That Can Ruin Your Home Loan Prospects

A home loan is a powerful tool that can empower you to own a home of your choice. Homes are fixed assets costing lakhs of rupees. Hence it may be difficult for an individual to own one without the aid of a home loan. From the lender’s perspective, the home loan is long-term credit. So, they would like to be doubly sure of the applicant’s ability to repay and other conditions being met before approving a home loan.

While you may be eligible for a home loan, there may be certain mistakes on your part which may be ruining your chances of a getting a home loan approval. Here are the top five common mistakes that you should be aware of while applying for a home loan.

1. Too many loans in your credit portfolio

Buying a home is a significant investment on your part. In turn, the home loan is also a big-ticket commitment. If you are already saddled with too many loans in your portfolio, you might just ruin your prospect of getting a loan. Too many loans would mean increased EMIs.

So, your lender may hesitate in approving your home loan. It might also be a drag on your finances. If you plan to go in for a home loan, it is good to close some of your existing loans.

2. Not having enough funds for down payment

Down payment is the commitment from your end for the asset that you plan to buy on credit. Banks and financial institutions have their own criteria of deciding what percentage of the asset cost is approved as a loan. Though the RBI has set the minimum down payment figure to 20%, lenders are at liberty to increase the down payment figure as they deem fit.

This may be due to various reasons like a higher loan amount applied or below-average credit score of the applicant. Make sure that you have funds that are 5-10% more than the usually stipulated down payment figure. You would probably regret later if your dream of owning a home is shattered just for the inability to fund for down payment.

3. Applying for a large loan that exceeds your repayment capacity

As homes are assets that last a lifetime, all of us look for ones with enhanced features and amenities. In this process, we often overlook the cost for all these. A reassessment of existing and future commitments should be taken into account before finalising the property.

Do not take the chance of applying for a very big loan. In cases like these, you could consider applying with a co-applicant, which may help you when it comes to enhancing the loan capacity.

4. Poor credit score

A good credit score is a non-negotiable when it comes to a home loan. A credit score is a gauge of your creditworthiness. A good credit score is an important determinant of any of your credit, more so for a home loan.

You should ideally be checking your credit score at least once in 3-6 months so that you know where you stand. If your credit score is not up to the mark, work with your bank to clear any existing dues before you apply for a home loan.

(Related: Find out how to check your credit score here.)

5. Selecting properties from dubious builders

The title of the property matters a lot when it comes to applying for a home loan, as it stands as security for the lender. In the eventuality that a borrower defaults, the lender looks to recover the loan amount by selling off the asset.

If the property you have chosen is from a dubious/not-so-trustworthy builder or does not have a clear title, your bank would not like to approve the loan for such a property. With the introduction of RERA, it is good if you could check RERA approval for the project before applying for the home loan.

Getting approval for a home loan is not rocket science. Make sure you stay clear of the possible mistakes that could be ruining your chances of a home loan.