Home loan mistakes: Don't equate eligibility with repayment capacity

Be warned that incomplete, outdated and inconsistent documents can delay loan approval and disbursal

Buying a home is often the biggest financial decision an individual makes, yet many borrowers underestimate the preparation it requires. A recent NoBroker report highlights recurring mistakes among home loan applicants. Avoiding these pitfalls can make borrowing smoother and less stressful.

 

Eligibility vs affordability 

A common error is confusing loan eligibility with affordability. Lenders assess eligibility using income, credit profile and regulatory limits, but borrowers should resist taking the maximum amount on offer.

 

Many buyers set equated monthly instalments (EMIs) too high relative to net income. “Borrowers often assume that income and interest rates will remain stable throughout the loan tenure,” says Amit Agarwal, co-founder and chief executive officer, NoBroker.

 

Job changes, income disruptions and rising interest rates can strain cash flows. While lenders usually extend tenure when rates rise, EMIs may also increase in extreme situations. Family commitments, existing liabilities, inflation-driven increases in household expenses, and the need to save for other life goals further stretch budgets.

 

Another blind spot is underestimating non-EMI costs. Buyers often focus on monthly repayments and overlook stamp duty (typically 5–7 per cent), registration fees, brokerage and processing charges at the time of purchase, and maintenance, insurance and property taxes later. Many of these expenses are not covered by the loan and must be funded upfront or over time.

 

“The safer approach is to opt for maximum tenure to keep mandatory EMIs low,” says Agarwal.

 

“Ideally, not more than 30–35 per cent of net monthly income should go towards EMI payments,” says Pramod Kathuria, founder and chief executive officer, Easiloan.

 

Maintaining an adequate emergency fund is vital. “Borrowers should ensure they continue to allocate money towards long-term investments even after taking on a home loan. A home loan should support financial stability, not compromise it,” says Atul Monga, chief executive officer and co-founder, BASIC Home Loan.

 

According to Agarwal, prepaying whenever surplus cash is available helps reduce the interest burden over time.

 

Misunderstanding eligibility criteria

  Many borrowers assume lenders consider only income and credit score, but assessments are broader. Job stability, business vintage, income consistency, financial discipline, existing liabilities, property location and the completeness of property-related approvals all matter. Freelancers with irregular income or buyers choosing properties with documentation gaps may face challenges.

 

Eligibility is constrained by income-based norms—fixed obligation to income ratio (FOIR)—and property value-based norms—loan-to-value (LTV) ratio. “A borrower eligible for around Rs 90 lakh based on income for a around Rs 1 crore property may receive only Rs 80–85 lakh due to the Reserve Bank of India’s LTV limits,” says Agarwal.

 

Timelines for approval and disbursement 

Timelines often diverge from expectations. “Home loan approval and disbursement typically take one to three weeks, depending on documentation readiness, property checks and legal and technical due diligence by lenders,” says Monga.

 

In primary sales, approvals and disbursements can be concluded within four to five working days if documents are in order. Resale transactions usually take longer—often 10 to 14 working days or more.

 

“Salaried borrowers generally see faster processing, while self-employed applicants face longer timelines due to more detailed income validation,” says Rishi Mehra, chief executive officer, Wishfin.

 

Why delays occur 

Delays commonly stem from repeated document submissions when papers are incomplete, outdated, inconsistent or misaligned with lender specifications. Name mismatches, missing floor plans, absence of khata documents (in Bengaluru), incomplete ownership records or delayed society no-objection certificates can stall cases. Delays by builders in issuing sale agreements, tripartite agreements or demand letters add to timelines. Requirements also vary across lenders.

 

These issues are avoidable with complete, accurate, current and legible submissions. “High-resolution scans should be used instead of photographs taken by a mobile phone. Utility bills should not be more than three months old,” says Mehra. Kathuria emphasises comprehensive financial disclosures.

 

Choosing unsuitable lenders 

Misaligned lender selection means approaching an institution whose policies do not fit the borrower profile or property type. “No lender optimises for interest rate, speed and flexibility together,” says Agarwal. Self-employed borrowers may struggle with salaried-focused lenders. Older resale properties can face stricter title and age-related norms. Credit score cut-offs also differ among lenders.

 

Borrowers should research multiple lenders, consider experienced direct sales agents and, where possible, begin with a lender with whom they already bank.

 

Preparations self-employed borrowers should do

Non-salaried borrowers need additional preparation. Due to their fluctuating incomes, lenders prioritise consistency and business stability. “Non-salaried applicants should ensure that audited financial statements are current, income is accurately reported, bank statements reflect business cash flows clearly, and tax filings are consistent,” says Kathuria.

 

Evidence of business continuity, profitability trends and documentation quality often outweigh aggressively reported income.

 

A strong credit score improves chances of approval. Selecting lenders comfortable with self-employed profiles also helps. “Making a higher down payment can further strengthen the application, as lenders often apply more conservative LTV norms to high-risk applicants,” says Monga.

 

Purchasing older property 

Purchases in older neighbourhoods bring added complexity. Resale properties often involve longer timelines due to documentation gaps, complex ownership histories, missing approvals and ageing infrastructure. Legal and technical due diligence is more complex than in developer-led projects.

 

Borrowers should ensure titles are crystal clear, ownership chains are well documented, and approvals and occupancy certificates are in place. “Advance payments should not be made before thorough document validation,” says Mehra. Buyers should also be prepared for lower LTVs or lenders making additional demands.

 

Ensure credit readiness before applying

 

Monitor credit reports and correct discrepancies early

Outstanding dues, especially credit card balances, must be paid on time

Credit utilisation ratio of cards should be kept low

Close unnecessary credit accounts

Avoid applying for multiple loans or credit cards close to a home loan application

A credit score of 750 and above can help secure a lower interest rate