Showing posts with label real estate finance. Show all posts
Showing posts with label real estate finance. Show all posts

Home Buyers’ Guide: Tips To ‘Nail Down’ Your Home Loan & Avoid Rejections

Nothing can be more frustrating that your application for home loan getting rejected. Your dreams shatter and your hope nose-dives into the deep pit of failure. However, nothing is destined or a yield of your bad fate. Applying for a home loan and getting it sanctioned from the bank requires meticulous approach. Indian realty market is flourishing with increased FDI inflows and a number of cities with an amazing infrastructural make over. Therefore, you must now follow a strategy and lay emphasis on certain pointers so that you opt for a right home loan and that too successfully.

Here are few points that can help you to nail down your home loan successfully:

1. Maintain a Healthy Employment Status

Before deciding to go for a home loan, you must be assured that your employment status is stable and healthy. There can be lay-offs, on-bench projects being turned off or anything bad related to your job. Therefore, you have to feel the situation around you and then use your senses to make sure that the job is safe and secured. There are loans that are offered to people not in job but for home loan, the bank has to have a candidate with a secured career role.

2. The Income Level

The income level will decide the amount you can pitch for the loan. The bank may reject the application if you appear to be lacking sufficient income for the size of the loan. In such cases, you may be required to request about making a larger down payment or bringing in a co-signer, such as a relative and that too a with solid credit. Both the scenarios can be painstaking if you lack the much needed resources and capital.

3. Financial Stability

Apart from a secured job, banks in India take note of other aspects that will judge your financial stability. These aspects could be property or fixed deposits that will decide the fate of your home loan application. Apart from this, if you are already bearing a car loan and a personal loan then there are possibilities under all the legal circumstances that your current loan eligibility will come down and your home loan application will be rejected.

4. The ‘Flexibility’ Factor

This factor is very much accessible if you are planning to buy homes in some of the India’s flourishing markets like Bangalore property market or realty market of Chennai or Mumbai. The buyers can enjoy the repayment options and that too sans extra charges or if there are possibilities of re-fixing of interest rates. The Indian real estate market witness cut-throat competition and the banks with this understanding approach are now offering a great deal of flexibility in the home loans.

5. The Home Appraisal Value Matters

This is another important aspect that you must take into consideration now without any fail. If the bank feels that the home you wish to buy isn’t worth the amount that you seek to borrow then there are chances that the loan plan will fall through. Therefore, it is advisable to listen to what the bank has to say and be grateful that you did not overpay.

The Verdict

Nailing down an apt home loan and that too through a right path can be a little tricky as there are a lot of options in the market. Moreover, there are points that if missed can lead to home loan application’s rejections. So, ponder over the points and all the best for your dream home!

Author Bio

Vineeta Tiwari is a keen writer on Global Economy and Realty market. She has written articles on Global realty market and ongoing trends and tips for investors. An ardent reader, she is happy to pen down research based write-ups for global audience. Currently, she is professionally associated with popular realty portal,

Risks in Real Estate Investments

In our earlier post – Real Estate for Small Investors, is it? [click here], we suggested various ways in which people can invest in this field.

But very often it is seen that a common man is reluctant to invest in real estate properties, owing to the perceived and prevalent risks in this sector. This reluctance is even more severe when an individual is asked to invest in the areas, located far from his/her current place of residence. Let us first have a look at the types of real estate investments that a common man generally makes.

  • Buy a piece of land
  • Buy a constructed property
  • Lease a building
  • Convert a far flung piece of land
  • Book a property in an ongoing project by a builder

No doubt that these are all great means of investing and many a times provides handsome returns on the employed capital. In fact many individuals have made huge fortunes by simply following the above mentioned approaches of investing. But still, this sector seldom sees the confidence and faith among the investors as it is entitled to get. Reason? Well, here are few of them:

Major Risks

These are some of the most common risks that people believe can affect their RealT investments. Let us come to each risk one by one and the ways in which they can be mitigated to some extent:

Economic Risk
  • This is the first & foremost risk faced by any investment in any region.
  • The fluctuating prices of land in some regions due to the mismatch between demand and supply tend to give rise to the fear of this risk.

  • This risk can be mitigated by setting a clear time horizon of investment.
  • Moreover pre-investment background work of historical price movement in the region can give the investor some confidence.

Illegal Possession
  • This risk is most common in any investment made outside your hometown & mostly in metropolitan cities like Mumbai, Delhi etc.
  • Rental investments face this risk as there have been cases wherein tenants have illegally occupied the properties. 
  • Even the non-rented properties face this risk due to the presence of land-mafia (a person illegally claiming others’ properties).

  • Land acquisition laws have become stricter these days.
  • Before renting a property, it is recommended to have a background check of the tenant & have a robust legal agreement of limited tenure. Landlords should increasingly ask for payments through PDC (Post Dated Cheques) to be on a safer end.
  • Regular visits to the non-rented property and putting up your name board on the property can reduce this risk to a large extent.

Project Operating Risk
  • People investing in the ongoing projects by builders face this risk.
  • This risk may arise when a builder / contractor falls short on finance or other resources required for completing the project.
  • This is also linked with the financial risk explained above.

  • Never pay complete or major part of payment in advance to the builder. This will finish his liability to complete the project in planned manner.
  • Check the track record and credibility of the company before investing in their projects.
  • Have proper legal agreements ready at each checkpoint of payment.

Construction Risk
Closely related to the above genre of risk, this arises when there are inefficiencies in the construction process.

Refer to our previous post – Construction of a RealT project  [click here] for more detailed insights on this point.
Interest Rate Risk
  • Often due to the not-so-stable political and economic conditions in India, the RBI chooses to change the interest rates of the housing loans.
  • This may cause additional pressure on the individual investor as his planned outlay can change drastically in terms of interest payment.

  • The individuals should thoroughly clear the conditions with the issuing bank about the interest rate fluctuation in case of changes by the RBI.
  • Some banks allow fixed interest rates forever, but that are slightly more than the market rates; but definitely more secured.

Expropriation Risk
  • Expropriation risk basically refers to the risk of a private property having used for a public purpose.
  • This risk mainly applies to age-old dormant properties.
  • Mega profit-generating realty projects in very unstable economies like African Nations also face this risk.

  • This risk can be done away with by being a bit cautious and vigilant for your properties.
  • On age-old ancestral properties, susceptible to this risk, you should do a bare minimum construction time to time. This way it won’t be dormant anymore.
  • In unstable nations, the company carrying out the project should proactively partner with the government in profits or other ways so as to reduce the risk of expropriation drastically.

Financing Risk
Borrowers for real estate investments often face the risk of financing, especially after the sub-prime crisis of 2008.

The above mentioned interest rate fluctuations are also included in the gamut of financial risks.

More on financing can be read in our earlier posts, which also covers the various ways of financing a RealT project:

These risks are prevalent in almost each and every real estate investment. Of course, the extent of different risks will depend on the size and nature of the investment. But if handled with a little more care, these risks can be minimized to a large extent and then even the Real Estate Investments will find their lost glory again.

---- Thanks for reading RealT Horizon. Your comments will help us improve our analysis. J ----

Financing the Real Estate by Equity

In our previous post Financing - Funding a RealT, we showed how debt can be used as a vehicle to fund your RealT project. In this post, we will try and elucidate how one can finance projects using equity.

Out of the above 3 ways, top 2 are self-explanatory. But let’s just look at the Real Estate Investors part and REIT in detail.

As can be seen from the above classification that in real estate, there are various investment fund options. Let us summarize each of these with one line explanations: 

Type of Investor
Venture Capital
They invest very cautiously in realty projects by valuing its worth using their models of valuation.
Real Estate sector has attracted a lot of FDI in India, but recently the trend has been falling. See figure 1.
Hedge Fund
Though not very popular, but Hedge Funds are increasingly moving into funding the real estate projects.
Insurance Companies
They invest in large projects having high returns for longer horizons which commercial banks generally don’t take up.
Pension Fund
Another new source of financing in real estate. They generally fund through mortgage bankers & brokers.

An analysis of Real Estate FDIs in India
Figure 1: Rising FDI share towards the end

REIT (Real Estate Investment Trusts)

This is an extremely important instrument in the Real Estate Financing as it pools in the investments from various investors and then use this fund to finance the realty projects. REITs is a vast topic in itself and we will share our views on them in our later posts. But just to explain the basic phenomenon of REIT, refer figure 2.

Figure 2: Basic mechanism of REIT formation

Note: We have just touched upon the aspects of Equity financing in real estate, however the details of many of these instruments will be covered in our subsequent posts.

                                                    ----- Keep Reading RealT Horizon J -----

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