Common Issues Faced by Home Loan Borrowers in India

Buying a property is not as easy as it may sound. The act entails an ocean of efforts, most of which can be quite challenging; for instance – arranging the finances. Some home loan seekers tend to describe the process as quite trying. But, it does not have to be so, especially if approached in the right manner.

Often, in their quest of securing a home loan, people pay little attention to the numerous mistakes they make in the process, which they end up paying heavily for. Here are some common mistakes, avoiding which can help you to buy a home in a hassle free manner –

Poor paperwork

Paperwork is one of the first things that you need to take care of when applying for home loans. Waiting for a long time, only to be turned down in the end can get frustrating, which is why you need to ensure that you are ready with the right documents.  Keeping all the documents ready and in the correct format beforehand will save you time, efforts, and also disappointment.

Instant rejection

There are cases where loan applications are rejected even before the process starts. There can be various underlying reasons behind it, including incorrect paperwork, borrowers failing to meet the eligibility criteria, and so on. It is best that borrowers check their credit scores and maintain their financial records well before applying.

 Incorrect property valuation

This is another common issue with home loans that borrowers face. The lender/bank, before sanctioning a loan, assesses the property in question, legally, technically, and financially. The amount that results out of their evaluation is what the actual loan amount is based on. It is therefore, important that you get your property evaluated by a bank approved valuator prior to submitting your loan application.

Interest rate predicament

Confusion regarding which interest rate is better for them – floating or fixed – is another dilemma that borrowers have. To avoid getting in trouble later on, you need to do  proper market research and go through the loan clauses. There are various online loan calculators available to help give the borrowers an idea of what their loans and repayment schedules will be like.

Apart from the above, other problems such as processing fee refund issues are also commonly reported. Most of the problems stated above result out of carelessness on the borrowers’ parts. It is therefore, necessary that you read the fine print before you apply for a home loan, and be precise each step across the way to avoid facing such problems.

PMAY benefits first time home-buyers must know about

One of the recent developments with respect to the Pradhan Mantri Awas Yojana, also known as PMAY, has been the extension of benefits of CLSS under the program.  The credit-linked subsidy scheme now also includes the middle income group that earns up to Rs. 18 lakh in a year.

The current situation for easy home loans under the PMAY is as mentioned below –

• If you are a home buyer with a yearly income of less than Rs. 6 lakh, you are eligible for an interest subsidy of 6.5% on a principal amount of Rs. 6 lakh.

• If you are a home buyer with an annual income that lies in the range from Rs. 6 lakh and up to Rs 12 lakh, you will get an interest subsidy of 4% on home loans.

• If you are a homebuyer with an annual income ranging from above Rs 12 lakh but less than Rs 18 lakh, you can avail an interest subsidy of 3% on loans.

So, an individual with an income slab of less than Rs 6 lakh per year, borrowing Rs 20 lakh at an interest rate of 10% per annum, will need to pay an interest of 3.5% (10%-6.5%) on Rs 6 lakh and an interest of 10% on the remaining sum, as per the subsidy.

This new development by the Government, with a focus towards increasing the demand for real estate, will greatly promote easy home loans.

Besides the above, people under all these three income categories will get to avail a benefit of Rs 2.4 lakh, and a reduction of ₹2200 is also expected on the monthly installment on home loans. Another major extension brought about by the Government has been with respect to the EWS and LIG, as their loan terms increase from 15 to 20 years.

PMAY was initially introduced with a focus on the economically weaker section and the low income group, but has gone on to include the middle income group too. Having launched PMAY on 25th June, 2015, the Government desires to construct about 2 crore homes by 2022. The implementation of the home loan subsidy scheme is to be carried out by nodal agencies, namely – the NHB (National Housing Bank) and HUDCO.

Things to consider when selecting a home loan

Buying a home is one of the biggest investments that you make in your life, and selecting the right home loan can provide you the necessary help to buy a house. But, before you proceed, there are a few important things that you must consider: –

• EMI Affordability

Since this is the part of your monthly income that will be used for the repayment of your loan for the next 10-15 years, you must not stretch yourself. See that the EMI does not exceed 45% of your salary.

• Down Payment

No bank will give you 100% of the property value as a loan; hence, you need to contribute something from your own pocket. As an estimate, around 20-25% of the amount will have to be funded by you.

• Interest Type

Generally, home loans either have a fixed or floating rate of interest. In case you feel that interest is low and can only rise further, opt for the first, or else floating rate should be what you choose.

• Charges and Penalties

It is always best to make sure of all the charges and penalties that apply on your home loan. Although basic charges might include things like processing fees, there may be penalties when you change EMIs or transfer the loan to another bank.

• Insure the loan

Home loan insurance will get you an insurance equivalent to the home loan. So, if anything happens to you, your remaining home loan amount will be paid for, while your family continues living in the house.

• Tax Benefits

Get a good idea of all the tax implications and benefits that you are entitled to receive, when servicing your home loan.

Consider the above points to choose from among the best home loans in India and buy the one that best meets your needs.

3 Benefits of seeking a Mortgage Guarantee backed Home Loan

For many people, it is quite a task to arrange the down payment while buying a new home. And if an individual does not meet a lender’s eligibility criteria, then getting a loan for a house is also a challenge. 

However, it has now become easier with the availability of mortgage guarantee backed home loans. With these loans in place, the amount of down payment that one has to pay is comparatively lower because of the higher LTV (Loan to Value) on the home loan. While the concept of ‘mortgage’ in home-buying is well known in western countries, the advent of mortgage guarantee has made getting a high amount home loan a distinct possibility.

Mentioned below are the three major benefits of mortgage guarantee backed home loans:

1. Buying your home sooner

A mortgage guarantee backed home loan helps the borrowers to buy their dream homes earlier than they would have anticipated. A higher loan-to-value ratio means you have to spend less time in arranging the down payment, and that in turn encourages early home ownership.

2. Increased buying power

Mortgage guarantee for the lender (who gives the home loan) translates to higher buying power for the borrower. To state it more specifically, if you opt for a mortgage guarantee backed home loan, you get better repayment terms in terms of higher loan amount and longer repayment tenure.

3. Quicker approval of loans

Loans backed by the best mortgage guarantee companies act as a form of insurance for the lender; as a result, mortgage guarantee backed home loans are characterized by quicker approvals which are comparable to conventional home loans.

These three benefits, in totality, can make a world of difference for homebuyers who aspire to own bigger, better homes at an early age. Moreover, the longer repayment tenure helps a borrower plan his finances, and spread out his liability of loan repayment as per his pocket. 

Here’s how IMGC adds on to the benefits of the PMAY

India has seen a lot of socio-economic development over the last few decades but one problem that still looms large in the country is that of lack of adequate shelter. As per the 2011 census, about 0.15% of the country’s population is homeless and this is something that acts as a major roadblock in the way of the country’s development. 

In order to resolve this major issue, the country’s government has come up with the Pradhan Mantri Awas Yojna to make affordable housing a reality for many. This ambitious project has made way for many people from the low income group to own a home. The key features of this scheme are:

• The government provides subsidy to people from the LIG and EWS segment in the range of 1 to 2.30 lakhs.

• Under this scheme, people from the LIG and EWS segment can also get subsidized rates on home loan which is only 6.5%.

• The subsidized interest rate is applicable only for an amount of up to six lakhs.

• People from the LIG and EWS category can also avail a loan under this scheme to renovate their house provided the house is not bigger than 30 square meters.

Therefore, as you would agree, with this comprehensive scheme, the government has indeed made owning a home a possibility for even the less privileged. In addition, the introduction of the mortgage guarantee linked home loans has added to the convenience of the loan applicants as people can now opt for higher loan amounts with ease.

How has the India mortgage guarantee corporation benefitted the PMAY?

The IMGC, was launched in the year 2012 and it was initiated with the aim to lessen the risk of the lenders and in turn increase the borrowing capacity of people. Since, this insurance or mortgage guarantee covers the risk of the lenders, housing finance corporations and banks are able to sanction higher loan amounts and even increase the repayment tenure to beyond the retirement age. 

Therefore, it would not be wrong to say that the PMAY and IMGC are working together to make affordable housing a reality for all in the country.

Know more about the Core values of IMGC

The primary color of the IMGC brand is orange and orange represents openness and optimism. The vision of the company is to get a future which is filled with confidence, foresight, assurance, hope and clarity. The tag line which says” Defining tomorrow” communicates the fact that this company is looking to redefine home ownership and also believes that every home owner has the capability to get a brighter future.

India mortgage Guarantee Corporation has certain core values and given below is a list of those values:

• This company believes in integrity and transparency and wants to lead the new areas of thought leadership, research & development, to become one of the most valued contributors in the mortgage domain. 
• It endeavors to contribute to and work towards a sustainable and effective proposition that enables not just business growth, but also the development of the economy
• This company works towards a particular goal which not only helps the business to grow effectively but also helps in the economic development of the entire society.
• Each one of its dealings, both external and internal, are handled with the inherent principle of trust. The organization believes that expert partnership is the way forward in building a stronger economy and brighter future for home owners for home across the nation.

IMGC makes early home ownership possible with its mortgage guarantee, enabling its partner lenders to provide mortgage-guarantee backed home loans that come with higher loan amount and extended repayment tenures. Being a first-of-its-kind mortgage guarantee institution in India, it is also an advocate of PMAY.

 The PMAY in itself is a strong initiative in terms of affordable home ownership, and will surely contribute to accessible housing for the masses within the country.