Lesser Known Reasons on Why your Home Loan Application May Be Rejected

Lesser Known Reasons on Why your Home Loan Application May Be Rejected

Securing a home loan is by far an important criterion in getting the home of your dreams. While the paperwork involved may seem simple enough, there are several factors involved in the processing of a home loan. Lack of attention to smaller details may result in your home loan being rejected.

Shibu Sukumaran, Partner – Capital Core is a professional with over 13 years of experience in Home Loans and Mortgages. He explains to you the various aspects you need to look into when applying for a home loan, to ensure that it is not rejected.

Bad Credit Score:

Thanks to a multitude of advertisements and general increase in awareness, you now know that a bad credit score may result in your loan application being rejected. Before you apply for a home loan, it is best to know what a good score is. Any score above 700 is considered good. Besides your score, a bank will also look into:

  1. Past loan repayment track record
  2. Number of loan enquires
  3. Number of non-EMI based loans (credit card, gold loans, overdraft)
  4. Whether applicant is guarantor for any loan and the loan repayment track record of that particular loan

If your research shows you that you have a bad credit score, then here are some ways in which you may improve it:

  1. Reduce the number of loan enquires you make
  2. Reduce the number of unsecured loans you have (Personal loans, Credit Cards)
  3. Bring down the outstanding on your credit cards
  4. Repay by your due date time frame (avoid EMI bounce and pay at least the minimum on your credit card before the due date)
  5. Avoid being a guarantor for your relatives or friend’s loans. Any loan delinquency on their part may result in rejection of your loan application

Your Loan Application:

Before filling in your loan application form, you will need to do your due diligence. Here are a few reasons why it may be rejected. These reasons may be attributed to you not doing your homework well:

  1. You are not eligible for the loan amount you are seeking based on multiple factors such as income, age etc.
  2. Property cannot be funded as per policy (Deviation, B Khata, number of units, outside geographical limits etc.
  3. You may have loans you have not declared
  4. Your employment status may be considered unstable
  5. You have multiple loan enquiries indicating uncertainty
  6. Loans availed after present Home Loan is sanctioned
  7. Credit Card/ Loans: written off or settled.
  8. Processing fees cheque bounce

Various scenarios that may lead to home loan application rejection

Though listed above, there are several common scenarios that unwittingly lead to the rejection of a home loan application. Let’s take a look at some of them.

Credit card fraud:

There are chances you may be the victim of credit card fraud. In such cases, your loan application may be rejected. Here are some tips to safeguard yourself: 

  1. Do not settle any loans or credit cards. Always consider full closure and ensure you have closure proof from the bank
  2. Do not serve as guarantor for any loans other than for your spouse/father/mother
  3. Never apply for credit cards or loans at malls or other such public spaces
  4. Ensure you have closure communication on any loans / credit cards applied but not availed from the bank.
  5. Apply for your CIBIL report directly and clear any anomalies in the report before applying for the loan.

Applying to multiple banks simultaneously:

This is a common practice among most people who are on the look-out for a home loan.It is not a wise decision to apply to several banks simultaneously because it resultant rejection may reduce the credit score of the applicant and co-applicant. Several applications raise a red flag at the bank and they may feel that your papers are not in order or you may be purchasing multiple properties at the same time.

Unstable job scenario:

Here are a few scenarios with regards to employment and home loans that you need to consider

Scenario 1: You have resigned from your current job and are in the notice period and have a offer from a new company.

>> Here you may have applied for a loan with the offer letter of the new company and payslips of your old one. The loan may be sanctioned based on the new company offer letter but, the disbursement will happen after you join the new company and receive your first salary. The office verification will be done with the new company.

Scenario 2: You have resigned from your present job and are in notice period without an offer from a new company.

>> You should not apply for the loan, as it will be rejected.

Scenario 3: You have joined a new company but are yet to receive your first salary

>> You may apply for a loan with the details of the previous company, relieving letter, new offer letter and appointment letter. The loan will be sanctioned based on the new offer letter and disbursed after the first salary credit.

Scenario 4: Loan is sanctioned based on the present salary and then you resign from the present job.

>> You have to submit the new company appointment letter and first salary credit bank statement before the sanction letter is revised and disbursed.

Age: Based on policy there is a minimum / maximum age that is predefined for a bank. It is important that you find out what this age is before you apply for your loan.

Location:There are predefined locations which are not funded by banks. Check with the bank before applying for a loan.

Applying with co-applicants: Below is a matrix that will help you with your application. Any other combination may risk being rejected.

  1. Self + Wife
  2. Father + Self
  3. Mother + Self
  4. Father + Mother + Self + Wife
  5. Self + Brother ( is allowed if there are two units in the building )

Any other combination is a deviation and is case-specific. It will be decided on the strength of the loan application (like property, income, past loans and present, relationship with the bank etc.)

These are some of the reasons that may result in the rejection of your home loan. It would be a good idea to do your research and consult a home loan advisor before you send out your application.

Anekal: Growing Hotspot in Bangalore’s Real Estate market

Anekal: Growing Hotspot in Bangalore’s Real Estate market

bangalore-real-estateBangalore’s real estate is dynamic and is constantly expanding. The CBD area continues to see construction happening – largely on the retail and commercial front, than residential. To accommodate the growing floating population in the city, its borders have grown to take in what was once considered the outskirts of the city. The southern parts of the city seem to have more favor with residential development. Anekal, around 40km from the CBD is one such area that is gaining popularity.

Anekal literally translates from Kannada into “elephant stone” and is also known locally as Gajashella Pura or “the town of elephant rock”.

1. The Geography

Two main stretches make up Anekal. One begins at Chandapura and goes to Anekal. The other stretches from Bannerghatta road to Anekal. A lot of real estate activity is centered in these areas and it is even being heralded as the next IT hotspot in Bangalore. The opening up of the approach road to ITPL and the sheer number of real estate and commercial development stands testimony to its rising popularity.

2. The Realty Development

Development in Anekal is segregated –Bannerghatta road is the residential hub and Chandapura is seeing a lot of IT related development. Realty activity here is primarily by quality Tier-2 developers. With the rising popularity of the area, a number of Tier-1 developers are earmarking properties for development here.

The residential development in Bannerghatta has an added advantage. The area connects to Tamil Nadu via Hosur and the location is witnessing a lot of joint development as well. Chandapura, on the other hand, holds immense potential in terms of commercial land availability.

3.The Infrastructure

Infrastructure-wise, roads leading to ITPL are wide. But the interior roads of the Bannerghatta sector will need some work done in order to facilitate smooth flow of traffic. Plans for this are underway and that should be taken care of soon. Ground water levels are extremely good here. The area has a lot of green space available too, something that is missing in the CBD; thanks to the wildlife and protected areas in the vicinity.

Construction here is following a pattern of sorts with a lot of plotted development. Villa projects are also in plenty here.

Rates in the area

Bannerghatta road

Average Rs 4250 per sq ft (in a lower-end locality) to Rs 4930 (in an upper-end locality)

Chandapura

  • Pure Land for sale (interiors)– Rs 600 to Rs 750 per sq ft
  • Pure Land for sale (main road) – Rs 2500 a sq ft
  • Pure Land for sale (vicinity of main road) – Up to Rs 1000 a sq ft

4.The Potential

Commercial development is on the way of getting organized here and there are several plans in for some good projects. The Chandapura stretch will continue to see IT development and in terms of residential growth, Bannerghatta road is quite saturated till the Bannerghatta Park. There may be some land left on the interior roads where development may be possible.

Investing for personal use in any of these areas may be good as prices will continue to appreciate providing good returns. Budget homes which are coming up in plenty on the interior stretches of this sector will be easily available to potential buyers, thanks to the leeway provided in the new budget.

Bangalore’s real estate development is increasingly on the lines of sectors being self-sufficient. Work, entertainment and essentials are all within a specific radius, bringing down commuting time. Anekal is well on its way to becoming one such self-sufficient reason, making it a great place for a potential investment.

To Build or Buy a Home – Everything you need to know

To Build or Buy a Home – Everything you need to know

buildorbuyIf you are on the verge of investing in a home and are weighing pros and cons of various aspects of this investment – you may want to look into the feasibility of building a home versus buying one. Here is a discussion with Dr. Madalasa Venkataraman, Lead Researcher, Century Real Estate Research Initiative, Indian Institute of Management, Bangalore that may help you make a choice if you are looking to invest in a home for personal use.

Housing may be looked at as a consumer product. It has two aspects – that of consumption and investment. As a product you consume, you may use it as your primary residence and live in it. From the investment point of view, this is a product that you will be pumping a substantial portion of your life savings into. These two aspects are rarely independent of each other, especially for the first-time buyer.

How do we choose a home?

Whether to build a house or to buy depends on the primary motivation for the purchase- to live in, or to rent out. If our primary motivation to buy a home is to live in it, there are various aspects based on which we evaluate our prospective home.

1. Locational attributes :

The centrality of the location, with respect to place of work, commute times, the access to roads and other transportation infrastructure, the proximity of amenities, availability of soft infrastructure such as schools, hospitals and shopping centers, parks and open spaces, lake fronts, etc. are some of the aspects we take into consideration. Very often, access to water and other urban services also impact the decision of finalising the location. Locational attributes are priced at the value of the land. For example, you invest in a home in Koramangala, you have all your amenities and requirements in close proximity and you will be paying primarily for being centrally located.

2. Community

As social beings, we are concerned about the community we are going to be living in. Our neighbours and the demographics of the region will factor into our decision-making. Evaluating the community you will be living in is a very personal decision. You may want a home with an old world charm, or you may choose a gated community where you have your privacy, and have neighbours with similar demographic profiles. Families with small children and the elderly may prefer close-knit communities, with public spaces such as parks and play areas.

3. Housing attributes

This pertains to the attributes related to the housing unit – both the interiors and exteriors. Housing attributes are partially related to money and how much you are willing to spend to customize your home. Some housing attributes such as the car parking space, the view, etc, may be a function of the type of housing.

What makes a sensible investment?

There are three kinds of home

  • The independent home, where you own the land and home completely – either as a part of a privately developed layout, a BDA layout or a revenue layout.
  • The villa, where you own the portion of land that your home is built on, yet is part of a larger (usually gated) community of homes with shared amenities.
  • Then finally you have the apartment, typically within a large apartment complex.

A buyer who buys a house to live in gives greater importance to ‘liveability’ considerations viz. location, community and housing attributes.  To such a buyer, any appreciation of property, while welcome, is only ‘on paper’ till he/she sells and moves out of the house. However, a person with an investment perspective may give more weightage to monetary considerations such as return on investment, ease of rental, and property appreciation and desirability of the area.

From an investment perspective, the following attributes need to be considered

1. Cost appreciation

Owning an independent house and the land makes perfect investment sense, if you are looking primarily at appreciation. The generic thumb-rule here is that, land appreciates, whereas buildings depreciate over time. Dividing the cost of undivided land by the total cost of the house, gives us the proportional cost of the land. Higher the share of land, greater is the appreciation due to locational factors. From this perspective, return on investment is highest for an independent house since the entire land parcel belongs to the housing asset. These rates will be lower for a villa, and the lowest for a flat.

2. Demand and supply for housing units

In certain areas, there is a higher demand for certain housing products. For instance, in places close to IT parks where rental demand assumes importance, renters may prefer apartments to houses. Therefore, apartment owners find it easier to rent out their houses compared to owners of independent houses, thus making higher rental returns on apartments.

3. Financing costs or ‘leverage’

How much you spend on getting the home of your dreams in each of these residential categories is also something to consider. When a bank provides a loan for purchase, it increases the affordability of the house. It is very difficult to obtain a loan to buy only land, and banks have stringent norms for construction loans for independent houses. Loans for flats and villa projects are much easier to obtain, especially if the projects are by large reputed builders and are preapproved.

Transaction costs also matter.

Independent houses are not for the faint hearted – there is a lot of running around to establish title and to get property papers in order, hassles in terms of following up with contractors on the project. But the benefit here is that you may customize the house to any degree. Though you may have to work hard a lot initially, all of the appreciation will be yours completely.

In a villa, your role in the completion of the project will be minimal, and you will get a good amount in terms of appreciation, though it may not as much as an independent home. Despite this, the demand for a villa is on the higher side, especially in Bengaluru, since it combines the charm of an independent house with community amenities. With a rise in income, there is an increasing demand for luxury floor space. A villa makes a nice investment option for those who do not have the time or inclination to see the project to completion personally, and the developer takes the effort with due diligence and project management.

The only downside to this option is that you have to deal with constraints in terms of customizing the space. This is especially for the exteriors, where residential societies impose several restrictions. Even your interiors may face similar restrictions because of the construction style.

Finally, an apartment is totally dependent on the legalities associated with its purchase and is completely regulated by the builder. If minimal hassle is what you are looking for, then this may be the option for you.

Your final choice of home, constructed or bought outright will depend on your personal comfort level and your expectations from your home. How much of time you are willing to dedicate to the process will also make a world of difference.

5 Important Aspects of the Akrama-Sakrama You Must Know

5 Important Aspects of the Akrama-Sakrama You Must Know

Suhasini Rao

Suhasini Rao

Bangalore’s skyline is dotted intensely with construction that violates building norms set down by the planning authorities. So much so, that almost 80% of properties in the city knowingly or unknowingly flout these regulations.

The process of urbanisation needs to be streamlined and monitored strictly. However, over time, the same has occurred unchecked. For instance, agricultural land has been constructed upon in violation of town planning rules.

Buildings have been constructed that are not in line with building regulations. Usually, buildings that violate building norms are demolished. This of course, not only causes hardship to the owners and others affected, but also leads to tremendous financial loss.

To deal with this, the State government of Karnataka has decided to implement Akrama-Sakrama scheme, which will enable regularisation of properties that had violated buildings norms.

The scheme is an amendment to various acts, including Karnataka Town and Country Act, to create what will be called the Karnataka Town and Country Planning (Regularisation of unauthorised Developments) Rules 2013. This bill has seen several updates and governments and is once again in the limelight right now.

These draft rules seek to regularise violations pertaining to setbacks, floor area ratio (FAR), non-conversion of agricultural land, and formation of unauthorised layouts and sites under urban local bodies, including the Bruhat Bangalore MahanagarPalike (BBMP).

It will permit up to 50 percent violation of setback norms and permissible FAR in residential buildings and up to 25 percent in non-residential buildings.

Any building in violation beyond this would attract demolition. There are several aspects that may be debated on this law.

Suhasini Rao, Senior Manager, Public Law Initiatives, Rainmaker Learning Resource Private Ltd, explains the implications of the Akrama-Sakrama for both builders and home owners in this detailed interview.

1. What is the proposed fee structure for the regularization of a building violating norms?

You may access a copy of the Draft Rules here. Rules 16, 17 and 18 outline the table of fees for different kinds of regularizations. Some of these may be quite hefty. Take the example of FAR for residential properties.

If the violation is up to or less than 25%, then the fee prescribed for regularisation is 6% of the total violated area in accordance with market value of land. If the violation is between 25% and 50%, then the fee is 8% of the total violated area’s market value of land. Beyond 50% violation may not be regularised and would be liable for demolition.

2. Should Akrama-Sakrama come into – what will be its impact on builders and buyers?

In the short term, properties that currently attract a lower price due to their status as ‘illegal constructions’ will increase in value after regularisation. Such a spike in supply of real estate may temporarily lower buying prices.

However, in the long run, the buyers may end up paying more. By paying the prescribed fee to regularise illegal constructions, for instance, professional builders could pass on the burden of these penalty fees to the ultimate buyers.

Therefore, property prices may increase at purchase.

3. What will this scheme mean for those who may be living in B-khata buildings or those that violate norms?

‘B’ Khata registration is granted to those properties that do not conform to planning regulations or have deviations there from. If the Draft Rules come into effect, essentially, owners of ‘B’ Khata properties would be able to have their properties registered as ‘A’ khata after regularising the property by paying the fees as envisaged by the Draft Rules.

4. How will the scheme affect you as the owner of a building which has such deviations?

If these Draft Rules are implemented, then, in the short term, as an owner of a property that is in violation of building regulations, you could pay a penalty fee and have your property regularised. This could also perhaps, boost the value of your property in the interim.

However, from a long term perspective, it may be damaging to the building or even to the area if there is unrestricted growth, or if development of the property is carried out without checking the health and safety requirements.

5. What are the concerns in the implementation of the scheme? What are the measures being taken?

The greatest concern in the implementation of the Draft Rules is the impact it will have on the long- term process of urbanisation and structured town planning. By regularising illegal constructions now, the government will earn revenue through penalty fees paid.

Further, a large number of properties that are currently seen as ‘unsaleable’ or attract lower prices due to their ‘B’ khata registrations, will become attractive in the real estate market, thereby increasing supply and lowering prices. But in the long run, this will gravely affect the real estate market in the city and indeed, in the State.

For one, disregarding safety norms and building regulations is not the answer to constructing sound infrastructure. Secondly, perception of real estate in Bangalore will be that of lower-quality construction since it will be a known fact that buildings in violation of legal requirements are permitted to exist.

Akrama-Sakrama continues to languish in the legal system and it may be a while before we actually see it come into force. The final shape this bill takes will continue to evolve with time.

The Ultimate Checklist Before Moving into your Dream Home

The Ultimate Checklist Before Moving into your Dream Home

The-First-Time-Buyers-Money-ChecklistMy friend Nishtha and Ahbay Sharma decided to buy a home for themselves. Nishtha’s immediate concern was that whether their to-be-home will have a kitchen, which is big enough to throw a dinner party. Abhay wished for a good view from the bedroom and a garden full of blooming flowers.

Finally, they bought their dream home after trudging from property to property every weekend. When they were looking for the best deal they came to me for advice.

I told them that there are many things that should look into while investing on a real estate property, besides a big kitchen, a good view and a garden full of blooming flowers. They learned that starting from ascertaining that the documents provided by the builder are genuine, there are the physical and material  aspects of the house that they should look into before making the down payment. Thus, the Sharmas, being wiser now, have made a checklist of these aspects of the house that they need to take into consideration before they zeroed in on one.

Take a look at the checklist put together by Nishtha and Ahbay Sharma.

 1.Defects Liability Period (DLP)

Almost all the builders these days have a DLP contract that ranges from 6 months to 12 months. According to this contract, the builder is liable to attend to any minor defects in construction after handling over the property to its owner. Generally, this period begins from the practical day of completion of work. It is very important to scrutiny this clause in the builder’s contract and to ascertain with the builder what defects come under this clause.

2.The A Khata

After acquisition of your property, ask the builder for the A Khata. The Khata is an important document for all property owners as it records all details about your property such as the size of the property, location, built-up area etc. for the purpose of payment of property tax. You also need the Khata when it comes to electricity and water connections, trade and building licenses and availing of bank loans. Besides, you surely need the A Khata for resale of your property.

3.Ventilation

A house needs to have proper cross-ventilation and adequate windows for light during daylight hours. It is good ventilation that keeps you comfortable, even when the weather keeps on changing. Each part of the house requires proper ventilation during the summer months and the winter season. The rooms should be set so that they do not receive too much sunlight and act like a furnace in the summer, and lose too much heat during the winter.

4.Rain Water Harvesting & Water Supply

The building codes stipulate that new buildings need to have provision for rain water harvesting. Rain water harvesting is an excellent method of recycling water, by which we can use tons of litres of water which would go waste otherwise. The builder should make provision for a water tank to save rain water, which could later be used for gardening, cleaning and washing. This way you will be contributing your little bit to the future of the planet by saving water.

In addition, ensure that the developers have made provisions for uninterrupted water supply for the house.

5. Power Back-up and Solar Panels

According to recent government rules, your building needs to have solar panels installed for your water heaters. Other than these, make sure that the developers have installed alternative power back-ups in for emergencies. Installation of solar panels will not only help diminish the sum of energy that is being used from the power plants, but also enhance the value of your house.

6. Waste Disposal Arrangements

A far-sighted developer would arrange for a mini sewage and waste treatment plant within the community. Ensure that the sewage and waste treatment plant is adequate to cover the needs of all the houses in your community. If the developer has failed to do so, ensure that the builder has provided other means for sewage and waste disposal.

Once considered as an add-on feature by big developers, installing Sewage Treatment Plant (STP) in housing complexes (having fifty or more dwellings) is made mandatory by the Pollution Control Board (KSPCB) in 2010.

7. Open Areas and Parking Areas

Another thing that is vital importance while buying a house is that there should be adequate open space and large trees on each side of the house or just outside the boundary of the house or road. Your dream house should also have walkways and parks for the residents. Moreover, make sure that the garden are does not slope towards the house as there is a possibility of rainwater flowing into the compound.

Additionally, check the size of your parking lot. Does an SUV fit into in? Make sure that each flat or plot have a parking lot. On top of it, the developers should provide parking spaces for your visitors.

8. Paint and VOCs

Sometimes, builders use paints and other polishing substances that are considered harmful, to cut-down on building costs. Before you move in to your dream house, check with the developer that they have not used paints/polishes that contain VOCs and have used eco-friendly paints.

Moreover, do not forget to consider the external painting of your home. Using all weather paints give your property a fresh look even after 3-4 years from the date of handover. If the developer did not use all weather paints, your property will start looking shabby within a few months. This will affect the value of your property.

9. Leaks and Water Seepage

Defective water pipes, sanitary fitments or drainage pipes cause leaks and seepage of water. This makes damps on walls, which can lead to serious problems over the years. If you notice any damp on the wall, rectify it immediately.

10. Cracks

Ensure there are no cracks on the walls or ceilings in your dream house. They are just not eyesore, but also potential a headache in the longer run. Hence, out some extra effort to spot them; after all it is your home.

11. Lift and Other Items

A recent study by Karnataka State Electrical Inspectorate (KSEI) reveals that around 8% of the lifts in Bangalore are not licensed. Though is impossible to ascertain whether a lift is legal or not, it would be wise to ensure that the builder has purchased the lifts from registered companies and has complied with the standards mentioned in the rulebook. Also, check the capacity of the lifts installed in your apartment. This is to avoid mishaps and inconvenience during the rush hours.

Make sure that appliances such as geyser, chimney, and electrical fittings are according to standard quality as per the sale agreement. Further, ascertain that fittings like locks, taps, showerheads etc. function well and are up to the promised standard otherwise you’ll end up burning a hole in your pocket.

12. Maintenance Crew

At times you have to deal with a short circuit or a blocked toilet. Make certain that there will be a maintenance crew to deal with such minor hiccups once you have moved in and the DLP is over. The maintenance crew should be competent enough to handle any emergency crisis at any time of the day. The majority of the developers have their own maintenance crew while others have a tie up with the contractors to do various kinds of repair work.

13. Security

Last but not the least it is important to check out the security system of the house you are purchasing. Many developers install surveillance cameras inside the premises. Moreover, it is very important to check whether the fencing and the wall around the property is in good shape. Safety is a major factor for you and you need to pay proper attention to the security system as this can lead to prevention of crime and will give you a sense of security 24X7.

Finally, Nishtha and Ahbay Sharma have found a house that fulfils all the criteria in the checklist.

This checklist is important when you start living in your dream house. We urge potential buyers not to jump into a rash and hurried decision, but to ascertain that all the points listed above are fulfilled.