Common Home Loan Issues in India — and How to Avoid Them

1. Rejection at the initial stage Many home loan applications are rejected upfront due to a mismatch between borrower credentials and lender requirements. Common reasons include not meeting age or income criteria, incomplete documentation, unverifiable details, or failed field investigations by the bank.

Solution: Borrowers should review the bank’s eligibility norms carefully before applying. Submitting correct documentation and providing verifiable information significantly increases approval chances.

2. Non-refundable processing fees Banks typically charge a processing fee ranging from 0.25% to 1% of the loan amount, which is usually non-refundable. Even if the application is rejected, this fee is not returned.

Solution: If a bank claims the fee is refundable upon rejection, insist on written confirmation. Always clarify this clause before applying, as verbal assurances hold no legal value.

3. Loan sanctioned is less than expected Loan amounts are sanctioned based on the borrower’s repayment capacity. Factors such as income, credit history, existing liabilities, job stability, and bank balance are evaluated. Often, the approved amount is lower than requested.

Solution: To enhance eligibility, include a co-borrower (spouse, parent, or child). Additionally, offer collateral such as NSCs, LIC policies, or provident fund statements to support your request.

4. Confusion over interest rate structure Borrowers often struggle with choosing between fixed and floating interest rates. Even fixed rates may be subject to periodic revision, as stated in fine print. Similarly, banks may not pass on interest rate cuts under floating rate schemes.

Solution: Thoroughly review the loan terms and ask the lender for historical rate change records under the floating rate system. Confirm any "fixed rate" conditions to ensure they are not subject to frequent revisions.

5. Property valuation mismatch Banks conduct independent technical and market assessments of the property. If the bank’s valuation is significantly lower than the purchase price, it will only fund up to its estimated value, creating a funding shortfall.

Solution: Get a valuation done by a bank-approved valuer in advance. This helps identify any potential gaps and prepare accordingly.

6. Insufficient down payment Banks typically require borrowers to pay 10%–20% of the property cost upfront. If the property’s market price exceeds the bank’s valuation, the borrower must cover the difference, increasing the effective down payment.

Solution: Ensure you have adequate funds for both the mandatory down payment and any valuation shortfall. Some banks allow instruments like NSCs or LIC policies to be used for this purpose.

7. Documentation issues: Title deeds and NOCs Banks require legal documents like title deeds and NOCs in specific formats. Missing or improperly formatted paperwork can delay or derail the loan process.

Solution: Before applying, obtain a checklist of required documents from the bank. Work with your builder or property seller to ensure all papers meet the lender’s standards.

Conclusion While these issues are common, they can be avoided through proactive planning. Understanding eligibility, arranging proper documentation, and coordinating with the bank early on can ensure a smoother and hassle-free home loan experience.