Common Mistakes to Avoid While Taking Home Loan

Home loans have indeed become an invaluable tool, for most people planning to buy a home. Since home loan funds you the best opportunity to buy the dream home for you and your family. But, at the same time, borrowing the money for getting the home is one of the crucial financial decisions of your life. Many times, the process can turn into a nightmare, if you commit certain mistakes while applying for a loan. So, doing good research is mandatory. Besides, home loans have very long tenure and the amount involved is cumbersome when compared to other loan products. Therefore, there should be no ground for mistakes. Here’ a list of common mistakes to avoid while taking home loans. Let’s have a look…

Here’s how you can avoid the mistakes while taking home loans

Understanding & Searching on Home Loans

Doing insight research about home loan options can help you find the best. But, unfortunately, this step is skipped by many home buyers. Try to find all banks which provide good housing loan options. Equally, check out their interest rates; find the details of other applicable charges like MODT, processing fee, late payment fees, etc.

It’s wise to choose the home lender first!

This is a common mistake usually done by us. Most people want to know how much loan they will be eligible, before finalizing a property. Nothing is wrong with that, but in case, if the property is unauthorized there are chances the bank will deny your application and refuse you to provide a loan. Thus, it’s suggested you select a property first, check all legal documents wisely, related to your property, know authorization and then apply for a loan.

Miscalculating down payment or not ready with enough amount as a down payment

This is another common mistake we do at the time of applying for a loan. Generally, a lot of people buy property under construction, thinking they can pay the down payment amount proportionately (while the bank disburses the rest). But seriously, this is not going to happen. Most of the lenders ask you to show the details of your savings before lending you the loan to check whether you have enough money to make the down payment or not. So, the best mantra is keeping your down payment ready before approaching any banker.

No window shopping

Quite important! Don’t blankly accept the terms and conditions of the bank as it can be negotiable. The only mantra here is to bargain and bargain as your negotiation skills can get the home loans for you on better rates by trimming out the extras. So, just shortlist 4 to 5 banks after knowing more about their interest rates, policies and let them compete for your loan. For example, if SSS bank offers home loans at a good rate, you can tell YYY bank to try and match it.

Never fall into teaser loans

These days, many lenders provide lower fixed rates of interest in the initial scale and shift to regular floating rates after the period. Thus, it’s really important to know the impact on the overall cost of such changes. So, you may not get cheated at this account or land up paying unnecessary charges.

Choosing between the floating rate and fixed rate

There is always a choice between the floating rate and a fixed rate of interest. You can avail of either fixed or floated. In floating rates, the rate of interest keeps on changing, based on rates of RBI throughout the loan period. While in fixed the rate of interest is always fixed, irrespective of changes in the rate of interest by RBI. So, if you are preferring loan for a shorter duration, it is wise to choose a fixed rate of interest. But, if you are planning to repay the loan in 20 years or more then you should take a loan on the floating rate of interest (with this you will get the benefits of lower interest rates in future).

Equated monthly installment – repaying capacity

Ultimately, you have to decide your repaying capacity per month based on your income, size of family, the standard of living, other-related expenses, etc.

Ignoring one’s credit score

Some people commit the mistake of disfiguring their credit score, by not repaying the EMIs for small debts like personal loans or credit cards. This weakens their chances of getting a home loan. So, it’s always important to maintain your credit score healthy, if you are willing to go for a home loan.

Not shopping the insurance cover

If you are the main wage earner in your family, you can’t afford to skip the insurance cover. A home loan insurance policy can prove helpful to cover the loan liability. It will save your family from the upcoming financial crisis when you are not around. In case, if you are not willing to opt for home insurance, you can buy a life insurance policy, critical illness policy or accident coverage.

Mortgage, Guarantor, Guarantee

Many times, banks ask for additional security or guarantee or mortgage which to the extent possible should be avoided.

Not reading the fine print

Most of the home buyers don’t read agreement clauses and details while signing it. Yes, it’s boring to read the 4 to 5 pages long agreement, but still, you should never ignore it as it includes some crucial points regarding charges, amendments, installments, and notifications. Remember things in writing have more weight, so never skip the details mentioned in the agreement.

Harsh recovery measurements

Some banks employ recovery agents, who adopt rough handed techniques for recovery of their loans. Many times, they pressurize the borrowers and act like crooks. So, try to avoid such banks…