Getting Home Loans is not so easy

Getting home loans these days is not easy. The Reserve Bank of India has imposed restrictions on banks stating that the loan to value ration should not exceed 80% and this means prospective homeowners find it hard pressed to arrange the down payment. In the case of houses costing less than 20 lakhs the LTV is about 90%. A normal two bedroom apartment may cost between Rs. 35 to Rs. 45 lakhs and this means the down payment is a sizeable amount. Home owners know this and save the amount plus other charges they have to pay incidental to the loan before approaching a bank. Some buyers may liquidate fixed deposits or short term investments or dispose off homes they already down and invest in a larger house. Salaried people borrow against life insurance policies, jewellery or retirement oriented investments like PPF. In case of loan against life insurance policies loans are not available in case of term insurance policies and those that have not reached the surrender value target. Even then a borrower can only access 85 to 90% of the surrender value. In a directive to Indian banks, the RBI has asked them to be fair and transparent while signing agreements with customers. Banks are not supposed to tie their loans with the prime lending rate. Households should receive credit counseling from banks. Quite a few banks do not pass on the benefit of falling interest rates but when the interest rate is hiked the banks charge a correspondingly higher amount and increase the number of EMIs. However, before he gets to the stage where he can apply for a home loan a prospective home buyer has to compile a whole list of documents needed by the bank. That in itself is a daunting task. Is it surprising that people would prefer staying in a rented house?