ATM :: What happens when you apply for too many home loans

Adhil Shetty CEO, | Sep 26, 2016, 06.49 PM | Source:
When you apply for a loan, the lender lodges an inquiry with the credit bureau to pull a copy of your credit report. This way, your credit score comes down by a few points.

Right now is a good time to dip your toes in the world of real estate. Home loan interest rates are the lowest they have been in a long time and expected to lower further in the near future. Demand in the real estate sector has been low, and developers have had to come up with incentives to attract buyers for their vast unsold inventories. Not just that, various legislations are coming in force to protect the rights of property buyers.

Assuming you’ve decided to buy property, and you’re happy with its paperwork and legality, chances are that you’ll seek a home loan to finance your purchase. If you’re buying a home loan offline, you may have to provide tonnes of documents pertaining to your income and taxes. It can be an overwhelming process for first timers.

While searching for the right loan, loan seekers wonder which lender they should go to. There are plenty of lenders providing home loans at attractive rates. How do they know which lenders would approve their application? In the process, loan seekers may apply to several lenders. Applying to multiple lenders for a home loan can, no doubt, multiply your available options should some lenders reject your application. But beware—doing this can adversely impact you.

Let us get acquainted with one of the most basic facets of applying for a housing loan, which is the ideal number of applications you should be making for a single housing requirement.

Affects credit score
When you apply for a loan, the lender lodges an inquiry with the credit bureau to pull a copy of your credit report. This way, your credit score comes down by a few points. The weightage of such inquiries in your CIBIL score is 10%. The higher the number of inquiries, the more credit-hungry you’ll appear to a lender inquiring about you. A large number of inquiries would reduce your credit score. If you’re on the borderline of the score of 750 which lenders find desirable, a small deduction could push you below that threshold, leaving you ineligible for many loan products.

Unwanted logistical hassles
Applying for a home loan offline involves complex paperwork. Replicating the same documents with multiple institutions can lead to unwanted logistical hassles of running around to gather documents and to submit them. Since most of the processes are time-sensitive, it makes sense to keep the number of applications minimal.

Monetary losses
Home loan applications may not be free. You will be required to pay a processing fee up front for the handling of your paperwork during the application process. This fee is non-refundable in most cases. Therefore the more the number of your applications, the more you will pay in non-refundable costs.

What you should do
• Studying and understanding the loan product will do the trick for you. You can educate yourself by reading the product brochure available through multiple sources such as the internet or loan marketplaces.
• Go online to compare loan offers from various lenders, and short-list those loans that come closest to your requirements in terms of eligibility, costs, and tenure.
• To aid the above, use readily available online tools such as loan calculators to ascertain your loan eligibility, the maximum EMI you can pay, and how long a term is ideal for your requirements. A search online will reveal these calculators and help you process these numbers yourself so that when you go to a lender, you have a much better idea of how much loan you’re eligible for.
• Retrieve a copy of your credit report from a credit bureau like CIBIL and understand it thoroughly. Reports are instantly available online for a nominal fee.
• Now that you’re equipped with first-hand information, go ahead and do a dry run to check your eligibility. Speak to the representatives of a lending institution to ascertain if you will qualify for a loan and also inquire about the quantum you’re eligible for.
• If rejected or offered terms not as per your expectations, take feedback from the institution and make amends accordingly in subsequent applications.
• Applying for a loan at one or two lenders at a time helps you concentrate thoroughly on the intent to secure a loan with terms of your choice.

The bottom line
Apply for housing finance with not more than one or two banks at a time. Based on the outcome of those applications, you can decide to apply further. Using basic tools and resources such as checklists, calculators, and product brochures will aid your objective to snag the best loan deal. This way, you save yourself from unsolicited monetary and logistical hassles.


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