Most Common Home Loan Mistakes to Avoid
 

Most Common Home Loan Mistakes to Avoid

27-Oct-2021
 

Home loans are long-term investments for most home buyers. Depending on the buyer, the tenure of the loan can be anywhere between 10 to 30 years. Considering that for most homebuyers, a home loan can seem like a life-long commitment. Also, compromising on the loan amount is not something many homebuyers would be willing to do, because making compromises with the loan amount means buying a home that isn’t perfect for them. So applying for a home loan is a process that doesn’t have much margin for mistakes. Wrong choices and mistakes can affect the loan approval process and the amount that can be sanctioned to the applicant. Home loan mistakes can also affect the repayment of the loan. It is crucial that home loan applicants be extra careful during their loan application process and educate themselves about any possible mistakes they can make. We have put together some of the most common home loan mistakes applicants tend to make so you can avoid them while you buy your dream home.

1. Not planning funds properly

Perhaps the most common home loan mistake that applicants make is not taking out the time to create an investment plan. An investment plan details how an applicant will spread out their funds including an emergency fund, home loan, investments, expenses, and savings. Not making a plan can lead to confusion about how much you can actually put aside for your home loan EMI. An improper plan can put undue pressure on your entire home loan journey and make homeownership an unpleasant experience. It can also lead to a situation where you are left with no savings for emergencies and contingencies. Put aside time to create an investment plan for yourself so you enter risk-free homeownership.

2. Not availing a home loan insurance cover

Many home loan applicants blatantly overlook taking a home loan insurance cover. Even if you have a life insurance cover, a home loan insurance cover helps tick all checkboxes and ensures peace of mind to you and your family. A life insurance policy will definitely prove to be useful during unfortunate circumstances, but may only cover the basics your family may need in your absence. However, a home loan insurance policy ensures that your home loan is paid off in the unfortunate event of illness or death.

3. Not putting aside enough for the downpayment

The RBI dictates that banks and other lenders can finance 75 to 90% of a home loan to buyers depending on the loan amount. The bank can decide the final downpayment vs home ratio after a credit risk analysis of the borrower. However, most home loan applicants end up making at least a 10% downpayment on their home loan. One of the mistakes most home loan borrowers make is not accumulating or saving enough money for their down payment. A higher down payment means an increased success of home loan approval and chances of a lower rate of interest on home loan EMI. Many loan borrowers are unaware of this and end up applying for larger loan amounts which can, in turn, affect their EMIs negatively. Make good use of down payment finance options like down payment loans, gold loans, and personal loans. Though a big down payment may seem impossible at first, the hassle is totally worth it.

4. Not paying attention to credit score

Home loan applicants with a CIBIL score of 750+ are more likely to receive their loan. Not paying close and frequent attention to your credit score can lead to a drop in your score making loan sanctions a difficult and tedious process. Before applying for a home loan, the applicant should make sure their credit score is in the 750 range. If not, loan applicants must undertake corrective measures like closing pre-existing loans to improve their scores to better their chances of getting a home loan.

5. Not comparing home loan offers

Every bank, financial institution, and lender offers different home loan policies, interest rates, processing charges, and loan tenures. The loan to value ratio (LTV) also varies from bank to bank. All home loan applicants need to thoroughly evaluate their options, study loan policies, and decide what is best for them before applying for a loan.

6. Not asking the right questions

Home loan application, especially for first-timers, can be an intimidating process. The paperwork can seem too complicated, the financial nitty-gritty can be intimidating, and you may have too many questions on your mind. But the complexity of the process should not stop loan applicants from asking the right questions to the right people. From questions that may seem silly to seemingly important questions, never hesitate to speak out and clear your doubts, you will thank yourself later for it.

7. Not staying updated with the home loan news

Homeowners can pay dearly if they don’t stay up to date with their lender’s policies and home loan policies in general. Lenders frequently change their loan interest rates based on various factors and it is important for borrowers to know these changes to make sure they get the best possible offer.

Owning a home is a prolonged journey that doesn’t just end with registration. To be able to enjoy it and take pride in homeownership, home loan applicants should make sure they are treading the right tracks. Before you buy a home, make sure you educate yourself on these possible mistakes you could make so your homeownership is as beautiful as you dreamt of.

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