Home loans are a great way to finance your house purchase. But it would be best if you always decided on a home loan only after carefully considering all associated factors.
With so many loan options available in the market, it’s easy to get confused and pick the wrong one. Always do your research and opt for a loan that best suits your needs without emptying your pockets overmuch.
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Mistakes to Avoid When Applying for a Home Loan
Here are some ways to make your loan process easier without breaking the bank.
Not Evaluating your Credit Report
When you apply for a home loan, one of the first thing lenders look at is your credit report. If you don’t have a healthy credit report with a credit rating of at least 750, your loan process becomes longer.
Make sure to order your credit report from CIBIL at regular intervals before you apply for a home loan and with enough time to clear any errors in it. Before you hand in your application, evaluate your own credit report to ensure there are no negative entries.
Clear all existing dues and pay off any pending credit card bills to improve your report.
Incomplete Research
Doing your research is always a good idea, especially if you’re borrowing a hefty sum as a home loan. Lenders have their loan schemes, interest rates, and loan tenures listed on their websites.
You can use a home loan calculator to compare various loan schemes and then apply for the one if think suits your needs. You should also compare various loan schemes and go for one that has the required loan amount with optimal interest rates and a decent tenure.
Not researching the right scheme can mean you apply for a loan that requires overpayment on EMIs that you later regret.
Selecting Shorter Loan Tenure
Shorter loan tenure means higher EMIs. If you opt for a short tenure loan, you will pay more in EMI and might have to compromise on your daily necessities. Always calculate your estimated EMIs before finalising a loan offer to ensure you have enough monthly income leftover for yourself.
You also need to factor in any existing loans that you are repaying and have enough balance to continue those repayments. Housing loan interest rates are sometimes lesser for short-tenure loans, so consider the interest payments in your EMI calculations.
Not Getting Insurance Cover
When getting a home loan, try to get adequate insurance cover too. With the help of insurance, you can protect your family in case of any contingency.
The insurance should cover all your liabilities so that your family can clear the loan dues.
Insufficient Down payment
You can generally get a home loan only for 80 or 85% of the property value.
That means the rest is paid out of your pocket.
If you don’t have enough corpus to cover your down payment, it can create more risk for you when applying for the loan. And paying a higher down payment even increases your chance of getting the loan approved since it reduces the lender’s credit liability.
Overestimating Repayment Capacity
There are several ways to reduce the repayment burden on your monthly income. A long tenure loan or a high down payment means reducing the monthly instalments.
If you’re confused about what loan amount you should opt for and how long, use a loan calculator to compute different loan amounts and tenures to get an EMI amount you’re comfortable paying.
Also, check the housing loan interest rate and get a loan with interest per the market average. This way, you won’t end up paying even more than what your loan is worth.
Conclusion
Applyingfor a home loan without proper research creates a financial burden that will last for a long time. Since home loans are a long-term commitment, always look at different schemes, analyze your options, and pick the loan that best suits you.
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