Buying a house is an emotional decision. But do we plan enough while taking a home loan? Are we sure that the home loan scheme is the best in industry?
Taking a home loan requires analysis and planning, as it is a long-term and expensive commitment. Borrowing without proper research may damage your financial well-being. While applying for a home loan, you need to be very watchful so that you don’t end up with a lender or a product that doesn’t suit you.
The following are the common mistakes while applying for a home loan.
No self-assessment on creditworthiness
The first mandatory step before applying for any loan is having a healthy credit score. A credit bureau provides credit reports, which are quite easy and convenient to download. A credit score above 700 may lead you to a favourable scheme. This will also give you the power to apply for a loan through the best banks. The lenders will evaluate your creditworthiness. A poor credit / repayment history will reduce the score and the borrower won’t be eligible for good home loan schemes.
Lack of proper research
Home loans have become quite commonplace and are easily available. With the increasing demand, multiple financial institutions provide customised schemes meeting one’s needs. Hence, it is very important to do proper research before applying for a loan from a particular institution. Home buyers needs to double-check their requirement, plan their finances, check terms and conditions, identify hidden charges, processing fees and flexible repayment options to name a few and accordingly, select the appropriate bank and scheme. Nowadays, many websites allow you to compare the home loan products offered by different banks. Lack of research may lead you to paying unnecessary charges or higher EMI.
Opting for shorter tenures
As far as possible, it is advisable to not opt for a shorter tenure home loan. The shorter the tenure, the smaller the loan amount. This also leads to a higher risk of default in the payment of EMIs, considering the high EMI. The eligible amount would depend on various factors such as age, credit history, and repayment capacity. Also, you need a high credit score and good repayment history to avail higher amount and get favourable terms and conditions. A longer tenure will ease your EMI and meet your financial objectives.
Overestimating repayment capacity
The biggest mistake which people generally do is to not include their monthly expenses while calculating their repayment capacity. The bank generally looks at your liabilities while granting a loan. If your monthly expenses are high and you take a home loan with a higher EMI amount, it may lead to a huge financial crisis. Your EMI outflow generally should not exceed 30-40 percent of your income. You should not depend upon future events such as an increment in your income and instead consider your present financial situation before opting for a bigger loan. Looking at the current situation, it is always advisable to understand your expenses before applying for a loan or selecting an expensive property.
Not taking any insurance coverHome loan borrowers should take proper insurance cover to protect their families from financial distress. In case of any unforeseen contingency, the 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.