ou've figured out how to qualify for your home loan and what you can do to score points with your financier. Now, let's take a look at the brass tacks.
When you sit across your lender, what s/he sees is not just a smiling face; s/he sees a revolving matrix of consumer credit (the loans you have and how prompt you are about paying them), liquidity (how much cash you have on hand), maybe even the probability of a delinquent debtor (someone who won't repay the loan on time/ at all)!
How is all the whirling mass of data that you provide, and want to provide, processed into relevant and reliable information? How do you ensure you get that all-important loan? Well, all you need to do is make sure you have the correct documents on hand!
Major players like ICICI Home Finance and HDFC are extremely particular about your documentation -- a prudent lender ensures they have all the required documentation in hand before they pre-approve your loan.
Let's start with the basics -- what is a credit appraisal and how does it become part of your credit documentation?
Your credit appraisal is nothing but a numerical translation of your risk assessment, based on your ability to pay the loan principal and interest back in time.
Confused? Don't worry. Here's what it means in layman's language. All they are looking at is the probability that you will pay back your loan as, when and how it was agreed you would!
And how is your promise to pay measured? Through astute conversation and documentation.
Conversation as a selling skill is an ambiguous area; documentation is not.
In fact, it is like a mirror. It reveals all your details -- personal, professional and financial, it contains a history of your experience with your employers, lenders (who you got other loans from), how much you borrowed, when you took the loan, when you paid it back and, most important, how you paid it back -- grudgingly or otherwise!
Here's an exhaustive list of the documents you should carry for your meeting with your relationship (loan) manager and what they mean to him/ her!
Identity Documentation: Tell us about yourself
- Your identity and nationality: Passport/ PAN card.
- Your current and previous address proofs: Electricity/ telephone bills.
- Your year of birth: Passport.
- If you're married and are using your maiden name: A copy of your marriage certificate.
What they tell the housing finance company
- Incorrect address submissions or address changes you did not inform him/ her about.
- Your correct age. This input helps your lender zero in on the loan tenure (duration of the loan).
- Your present lifestyle. This is derived from your present residential address.
- The rent outflow in the area where you stay is an indication of your present outflow (how much you spend).
- Joint or individual present home ownership. This is a pointer towards your present asset status.
A home finance company will verify all these documents and check to make sure they match the details you have submitted in your loan application.
Income Documentation: Tell us how much you earnSalaried Individuals
- Salary slips for the last two months.
- Form 16.
- Appointment letter/ Copy of the contract.
- Incentive/ Performance bonus letters/ slips.
- Provident Fund statement.
- Tax returns.
Entrepreneurs
- Balance sheets, profit and loss accounts and computation of income for the last three years.
- Tax returns for the last three years.
- Vendor receipts/ bills.
- A current business license.
- A signed contract/ service level agreement with your clients.
What they tell the housing finance company
- The source of your income -- is it from a parental allowance, investments, alimony, business or employment?
- Do you have a regular source of income?
- Does your work/ employer ensure a continuous and predictable cash flow?
- Loan deductions, if any, with your present employer -- are you cutting things too fine?
- Your residual /discretionary income, i e what you have left after paying all your bills, loan installments, etc
- Have there been any breaks in your employment/ business?
If you don't have a regular, consistent and sustainable income, the housing finance company will not believe you have the ability to make monthly fixed payments. Hence, establishing a regular and stable income history is your first step. All the above income documents help you do precisely that.
Asset Documentation: Tell us how much you have- Bank statements for the last six months
- Demat account
- Fixed deposit receipts
- Mutual fund statements
- Public Provident Fund
- Long Term asset documents land/ property documents
What they tell the housing finance company
- A good savings history indicates you are a responsible borrower and don't believe in overextending your credit.
- The possibility of securing your loan with one of your assets -- a collateral -- reduces the risk for the lender.
- Do you have cash reserves for personal/ financial emergencies?
Owning the entire asset list may not be possible. Nor is it mandatory. However, a sensible blend of assets, which also empowers one with sufficient liquidity (ready cash) always calms a lender's heart. Remember, both of you are there for the money!
Liability Documentation: Tell us how much you owe
- Auto/ Personal/ Home Loan statements
- Credit card statements
What they tell your lender
- They give a quick candid snap of your past -- and current -- loan servicing record (how efficiently/ promptly your repay your loans.
- It bases your borrowing future on the past. A history of badly serviced debts (if you have not paid your money on time) will scare away potential lenders.
- Are you capable of handling fixed monthly payments for many years to come? An average home loan tenure is nine to 10 years; i e 108 to 120 fixed outflows!
- Your loan payment plan; i e the length and structure of your loan.
- Your proportion of good debt vs bad debt.
What's the difference?
Well, good debt is sensible debt where you are paying to build an asset -- like a home, etc.
Bad debt is debt taken for things you don't need and can't afford. A classic example -- the Ritu Beri lehanga for Rs 34,000 for which you had taken a personal loan at 13 percent.
Well, guess what it eroded while the red lent a glow to your skin?
I know, what's zipping in and out of your mind right now: Is all this necessary?
Absolutely. Remember, despite today's market scenario wherein the customer is king, one still has to convince the lender that both you and your abode are sound, reliable investments.
And please do understand that lenders also do look beyond documentation; they might randomly also execute a check and on-site inspection of the business / job.
Ensuring you present current, up-to-date documentation is like ammunition, it may not always win the credit war but it will definitely ensure a fair playing ground!
This list of documents is not exhaustive as prospective borrowers can request customers to provide additional/ different documentation.
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Illustration: Dominic Xavier
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