SUKANYA KUMAR Founder & Director, RetailLending.com | Jul 14, 2015, 12.24 PM IST | Source: Moneycontrol.com
For many home buyers, getting a pre-approved home loan is half the battle won. But this can be far from the truth.
You must be wondering, “How is that possible!”
Surprisingly though, it is; very much. In my last 15 years of experience in mortgage industry, I have seen plenty. Most of the reasons are attached to the property you select, but there could be a couple of them in your credit too. Trying to list out as many as I can remember!
1. Lender not funding that particular developer.
Developers get an ‘approved’ tag from the lender after much scrutiny, but falls from that bracket in a blink. There’s no way to know in advance that the lender is going to refuse to fund on a particular builder’s under-construction project during the drawing down! You may not ever know what went wrong in their relationship.
2. Lender not funding that particular project.
Even if the developer is approved, the particular project you are about to buy may not have been approved by the lender yet. Could be reasons like, no one has applied earlier or simply because the lender has missed to approve it! A project approval takes about a month or more and you cannot wait for that long in anticipation.
3. Lender not funding that particular floor of that tower.
Now comes the third phase. The developer & the project is approved, but not the particular tower which houses your unit. The floor may have not received CC (commencement certificate) and hence the lender has not approved that floor and obviously cannot disburse your loan. As strange as may sound, if your sanction letter is valid for 6 months and the CC doesn’t come to the builder by then, your loan approval expires and you need to start from the scratch.
4. Out of geographic limit.
Each lender has its own risk appetite. Deciding the boundary or the city-limit is one of the primary criteria for their collection team to approve the location fit for funding. Many affordable housing, second homes projects are located on the outskirts and may not be within the approved geographic limit of the big city in vicinity. Different lenders will have different boundaries set too. Hence do not book the property in a far away location in anticipation that you will get a loan and that too from your own choice of bank without checking with your lender.
5. Exposure to the developer has maxed out.
When a developer launches a 2.50 Lac square feet of residential project with a projected sale value of an average and modest Rs.5000/- a square feet, the project cost becomes 125 crores. Under-construction properties have their own set of risks for the lenders, like- not getting completed in time, not getting completed at all, labour and raw material issues, fund flow issues etc. No lender wants to take 100% exposure on a project or a developer, how-much-ever big they are. All lenders will fix a limit of exposure, beyond which they will decline to disburse further funds. May be when you took the sanction nobody notices what you are buying as they are busy achieving their log-in & sanction targets, or, the limit was still available when the sanction happened and the lender did not block the limit for your loan disbursal as a process flaw, and as a result when your disbursement comes up, declines to oblige with a sorry face. With no fault of yours or the builder, you land up in a soup! Do check with your mortgage adviser on these inside-aspects as they will be doing other loans in the same project with the same lender and may be able to give you the insight before you choose the lender for yourself.
6. Lender does not fund commercial property or residential property under commercial use.
If you are buying an under-construction commercial property, then be very sure that the lender you are approaching for funding. There are a lot of differences between a residential property funding and commercial and many lenders do not fund commercial construction (ready or under construction) or if the residential unit is currently under commercial use. It is painful to call each lender and check. You may even fall prey to high rate of interest with some lenders as they might project the situation as a difficult one, but it is not if you know in advance, who funds for such type of constructions.
7. Lender not funding the type of loan you are looking at.
Lending policy is not evolved with many new lenders. Some old lenders have chosen not to venture into some products and some lenders stopped funding on certain products which they used to do earlier. It’s a complex situation and a general borrower wouldn’t know. For example, vendor take-over (seller’s loan being closed by the buyer’s lender during transaction) is supreme product, which not all lenders have been able to structure or venture into, fearing the risk embossed in it. So, if you need a specialised product, choose a lender after weighing your options. There are many premium products available in the market such as overdraft, moratorium products etc. which remains unknown without an expert’s guidance.
8. Developer watch-listed by the lender since you had taken the loan approval.
The developer may lose its sheen due to a bad borrowing, fund-flow matters, statutory issues, labour issues or even personal matters of the directors. You have no way to predict such fall, and the lenders may have watch-listed or blacklisted a builder and refuse to disburse the loan, even post-sanction. Some banks still do follow a process of doing due-diligence of verifying the balance sheet of the builder every year to determine the financial strength before they lend. They check the profit last year, any loss incurred, extra corporate borrowing details and track record of all such borrowings, to ensure their money is safe while the construction is on.
9. Lender finds out that you have taken another home loan in between.
Your credit worthiness is a pivotal condition in your loan disbursement. Many lenders do double-check your credit report a day before disbursing the loan to be doubly sure. If you have defaulted in any payment in between with any other lender(s) or availed another loan which reduces or nullifies your loan eligibility, they will factor it. Non-disclosure is always an issue with credit and more so, if it is about to affect the current draw-down. In a circumstance where you still have the eligibility, but the lender has a policy of not funding a third home loan and you have borrowed one in between making this one the third, they might refuse to disburse.
10. Lender stops mortgage wing.
This is more common than you think. Lender if not making profit out of mortgage business due thin margin, low business volume, recovery issues etc, they might just drop the idea of doing any home loan at all. This will be something out of nowhere for you, but an experienced mortgage adviser will warn you in advance.
Readers of this article need not lose heart. Most of the above conditions can be handled tactfully by your mortgage adviser and you need not worry!
Source : http://goo.gl/YsFCyf