Taking a home loan is a big and crucial decision in a person’s life. If you are all set to buy a property and have made up your mind that you want to apply for a home loan to buy your dream home, then you need to take many precautions and learned steps to take the right decisions at the appropriate time. You have to evaluate carefully and then take each step carefully so that there are no pitfalls later. Rather, you should apply for a home loan to meet your financial requirements and buy your dream property.
Buying a home is not a simple task and even applying for a home loan is cumbersome. You need to spend months and months getting everything streamlined and preparing for that big day. The following mistakes need to be avoided to repent later:
1. Overestimating your paying capacity
It’s best to check your eligibility based on your income. Don’t commit and sign up for more than what you can manage financially as it is a way of overburdening yourself when it comes to home loans or any loan, for that matter. You should always determine the loan amount realistically and opt for a loan amount that you are confident you will be able to pay regularly. Don’t ever opt for an EMI that is higher than your paying capacity by being optimistic when signing up for a home loan. It is mandatory and prudent on your part to take into account all of your existing EMIs and expenses into consideration while applying for a loan. Try to clear out as many previous loans or at least minimize them as much as possible before signing up for a new home loan. Your monthly expenditure should also be carefully considered and reflected upon so that you can ensure that you do not face any financial hurdles with your day-to-day expenses while making repayments against the home loan.
2. Not doing a thorough market research
Always do thorough and deep market research about what all home loan products are available out there in the market. Look for the plans available in the market and make a list of the pros and cons they have to offer. Finalizing the loan with the first lender that you come across might seem tempting but you have to remember taking a home loan should be a no-rush process and should be carried out with great vigilance. Carry out your own background check on each lender, by reading all the matters you can find on them online and offline. Reading reviews from existing or past customers about their home loan experiences may turn out to be really helpful. If you spend enough time researching the right home loan lender you will end up saving a lot of money not just while you are taking the loan, but in the long run as well. Even a few percentages of difference in the interest rates can make a significant difference to your EMIs later.
3. Not being aware of your credit history
All prospective lenders take into consideration your credit history by looking at your CIBIL credit report and score to evaluate your credibility and repayment capabilities. It is highly recommended that you pull out your Cibil report at least 6 months prior to applying for a loan. If your score is lower than 750, work towards getting to that mark by checking if there are any errors (such as incorrect data entries), and fixing them. Take charge of any settlements or written-offs in the past by repaying them back to have a clean track record. Rectification takes a fair amount of time, so make sure these things are done well in advance of applying for a home loan.
4. Applying for multiple loans
When you are seeking a home loan, take care and ensure that it is the only credit you are applying for. Till at least six months ahead of taking a home loan do not take any other loan or apply for a new credit card. If you do so, your prospective home loan lender may be discouraged by the fact that there are too many hard inquiries (the kind of inquiries that other lenders make) on your credit report and reject your home loan application or possibility lead to a reduction of the loan amount due to existing obligations.
5. Not Being ready with enough amount as a down payment
This is another common mistake people do at the time of applying for a loan. Generally, people assume that they will buy an under-construction property and that they can pay the down payment proportionately as the bank will pay the maximum amount. Most lenders ask you to show the details of your savings and funds before lending you the loan to check your eligibility and whether you have enough money to make the down payment or not. In case, if you are going to borrow money from your family or friends, they might ask you to give the details of how much amount you are going to receive.
The best mantra to get the maximum amount at a competitive rate of interest is to negotiate with the bank. The cost of your loan depends upon your ability to negotiate. The interest rates of home loans in most cases set on your repayment capacity. Besides, you can also negotiate on the processing fee, legal fee, other hidden charges and costs, free valuation of your property, and free documentation. You can save your money if you can negotiate well with the bank and get a loan at a lower rate of interest.
6. Not considering a pre-approval
A pre-approved home loan is a process in which a lender gives you an in-principle approval of a certain specified amount of loan that they are willing to lend at indicative interest rates before you actually apply for a loan. You have to submit the necessary documents that are required for pre-approval, after scrutiny of which a lender will judge your creditworthiness and grant you an in-principle approval. Going through this process makes a lot of sense before you identify your property. Since the lender will already scrutinize your abilities beforehand, your actual loan application process will become shorter, easier, and faster.
7. Opting for shorter tenures
As far as possible, it is advisable to take a home loan for a longer period and not opt for a shorter tenure home loan. Usually, the shorter the tenure, the smaller the loan amount and the higher the EMI. This can also lead to a higher risk of default in the payment of EMIs considering the high EMI. The eligible amount normally depends upon various factors such as age, credit history, and repayment capacity. Also, you need a high credit score and good repayment history to avail of a higher amount and get favorable terms and conditions. A longer tenure will ease your EMI and help you meet your financial objectives.
8. Signing documents before you understand them
Taking a home loan is not as easy, as it is a long-term commitment. There are several terms and conditions and jargon that need to be understood and decoded. If you have made a final decision to go in with a lender, make sure you understand each and every aspect of the loan documents before you put your signature down to seal it.
9. Not buying any life insurance policy
In case you are taking a home loan ensure that you take proper insurance coverage to protect your family from financial distress. In case of any unforeseen circumstances, home loan insurance can help the family to clear the dues. Multiple insurance products cover home loans. Take a life cover for a sum that includes your liabilities. Not securing your liabilities is a risk that most borrowers do not recognize, but one that you can ill afford.
10. Not paying installments on time
It is essential to repay the installments on time and maintain a healthy repayment record. This discipline will not only affect your CIBIL score but also ensure that you get free of your debts timely. A delay in repayments can push your tenure further, increasing the repayment amount. To avoid heavy late fee charges on your EMIs and pay off your loan with ease, it is necessary to prioritize your installments.
Conclusion
Purchasing a home is a significant financial decision and one that should not be taken lightly. If you are looking to buy your dream home and apply for a home loan, it is important to make informed decisions and take the necessary precautions. Overestimating your paying capacity is one of the most common mistakes to avoid, as this can lead to overburdening yourself with debt. Also, do thorough research on available products and lenders before choosing the best one. Be aware of your credit history, avoid applying for new credit, and ensure you have enough savings for a down payment. Negotiating with the bank for a competitive interest rate and considering a pre-approval are also important steps to take.
Avoiding these fundamental mistakes while applying for a home loan, may save you a lot of trouble later and ensure that you achieve optimum savings even while you are servicing your loan.
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