Common Mistakes to Avoid When Submitting Home Loan Documents

Home Loan Documents

Acquiring a property can be a costly affair, which is why many individuals seek financial aid through secured loans, commonly known as home loans. These loans are tailored to assist people in purchasing, constructing, renovating, or expanding their homes, with the property serving as collateral. Home loan interest rates usually fall within the range of 8.6% pa to 18% pa factoring in the interest on balance transfer and top-up facility.

To apply for this loan, one must furnish relevant home loan documents and apply to the lending institution. But, what if the application meets a dead end and gets rejected? To steer clear of such situations, individuals must ensure that they double-check the home loan eligibility criteria and required documents before submitting their applications. 

No need for drafting a separate checklist, as the sections below cater to a proactive approach that will help borrowers steer clear of any inconvenience.

7 Common Mistakes to Avoid while Submitting Home Loan Documents

Here are some common mistakes that often go unnoticed while applying for a home loan:

  1. Not taking credit score into consideration

Although credit score is a common factor behind application rejection, most applicants are unaware of its significance. Credit score plays a vital role in determining the creditworthiness of a borrower. In India, credit bureaus assign a 3-digit number ranging from 300 to 900 to borrowers based on various comprehensive evaluations. This includes repayment history, loan amount, repayment tenure, number of defaults, credit history, etc. It is thus imperative that loan applicants fully understand the importance of maintaining a favourable credit score to enhance their chances of securing a loan.

Usually, the desirable credit score benchmark of 750 or above confers individuals the opportunity to negotiate lower home loan interest rates. Therefore, individuals must regularly monitor their Credit Information Report (CIR) to detect any inconsistencies and take corrective measures.

  1. Applying for a home loan beyond the financial capability

In addition to considering the borrower’s credit score, lenders also evaluate their financial stability to ensure their capability of prompt repayments. Lenders generally prefer borrowers with a stable income source. Moreover, it is essential to maintain a sustainable debt-to-income ratio. This means that borrowers should never borrow more than they can afford to repay. It is recommended that borrowers analyse and prepare a suitable budget before applying for home loans. By doing so, they can avoid overextending themselves financially and ensure timely repayment of their debts.

Lenders may also reject your home loan application if they spot multiple dues or unclosed pre-existing loans that might lower your surplus income. 

One way to know one’s eligibility for a home loan is to use a pre-approved offer provided by the financial institution. These loan offers expedite the approval process and let an applicant know about his/her eligible loan amount. One only needs to provide some basic details to check his/her eligibility.

  1. Applying too frequently for multiple loans

Some borrowers believe that applying for home loans from multiple lenders will help them avail better offers and mitigate the chances of application rejection. However, this assumption is not entirely accurate. When a borrower applies for a home loan, the lender initiates a hard inquiry, which is then documented in their credit report. If multiple hard inquiries are made within a brief timeframe, it may appear as an act of desperation to secure credit. This could ultimately result in the rejection of the borrower’s application.

Furthermore, applying soon after rejection may also make borrowers look credit-hungry. Therefore, borrowers should properly research and compare the home loan tenure, interest rate, eligibility, etc. and only then select a suitable lender.

  1. Incorrect/Incomplete documents and mismatched data

One of the most common mistakes that usually lead to home loan application rejection is incomplete documentation and incorrect credentials. Lending institutions thoroughly go through the borrower’s personal information and documents verifying the credentials. In case the uploaded or submitted documents do not match the requirement, or are insufficient, the loan application is rejected.

Furthermore, it is also mandatory to accurately fill out the application form to avoid any errors, as incorrect credentials may fail customer verification.

  1. Frequently switching jobs

While changing jobs for career growth is common, frequent job changes may impact home loan approval negatively. Lenders prefer borrowers with a stable income source and consistent employment history. Frequent job changes may indicate financial instability, leading to loan repayment defaults. It is mandatory to have a settled and assured source of income to avail of hassle-free home loans.

  1. Property Dispute

Every property must adhere to certain guidelines prescribed by the concerned authorities. Furthermore, the age and condition of the property also play a vital role in home loan approvals. Worn-out buildings, unfavourable locations and disputes may hinder the compensatory value, in case the lender has to sell the collateral in the event of repayment failure.

Therefore, homebuyers must meticulously verify property documents and their condition before applying for a home loan.

  1. Lack of No Objection Certificate (NOC)

If the seller from whom a homebuyer is purchasing a house has taken a home loan against the property, they will have to present an NOC from their lender. Failure to do so may make it hard for borrowers to secure a home loan or even lead to application rejection. Therefore, borrowers should ensure that the property owner can furnish satisfactory documents.

Key Features of Home Loan

Some key features of home loans are as follows:

Home loan Interest rate-starting from 8.6%

Home loan tenure: around 30 years

Documents required: 

  • KYC documents – Including identity and address proof
  • Proof of income- Latest salary slip for salaried individuals and profit and loss statement for self-employed individuals.
  • Business proof- Proof of business existence
  • Account Statement: Last 6 months’ primary account statement

Eligibility Criteria for Salaried and Self-Employed Individuals

Follow the section below to find the eligibility criteria for home loans

Salaried individuals 

  • Minimum 3 years experience in govt. or private sector
  • Must be an Indian resident of 23 to 62 years of age

Self-employed individuals

  • Existing business with minimum 5 years of continuity
  • Must be an Indian resident of 25 to 70 years of age

Overall, the article above has stated all the required home loan documents, eligibility, and some pointers that you must be aware of while applying for a housing loan. Lastly, to calculate your monthly EMIs more efficiently, you may also refer to the online home loan EMI calculator, all you need to do is enter your loan amount, tenure and interest rate.

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