Availing a home loan is a great way to get funds for buying a new home. However, several first-time buyers have little or no idea about the home loan application process and commit mistakes that eventually lead to delay or rejection of their application. This write-up lists down a few mistakes that you must avoid.
If you are planning to apply for a home loan, it is paramount that you plan your finances well. A home loan is a long-term financial commitment, and if you don’t do your research well, you may end up getting a lesser loan amount or pay more than you can afford. Typically, first-time loan applicants tend to commit several mistakes, which prove harmful for their finances. As a home loan applicant, you must be wary of these mistakes for a hassle-free borrowing experience.
Borrow only as much as you can afford
One of the most common mistakes that first-time home loan applicants commit is that they apply for a higher home loan than they can afford to repay. Financial organisations will consider your income, and existing liabilities (if any) before determining the maximum amount you are eligible to borrow. However, you must know that the lenders do not consider your household expenses, so if your expenses are high and you take a loan with high EMI, you may find it challenging to repay the EMIs, which in turn can lead to financial crunch. You can use the emi calculator, an online tool to determine the exact EMI amount that you can afford to repay till the end of the loan tenure and borrow accordingly.
Not buying an insurance cover for loan
No matter if you are purchasing a home for your own use or investment purpose, the home loan should not become a burden for your family, if anything happens to you during the loan tenure. Most time-borrowers do not realise this risk and fail to buy an insurance cover for their home loan. Even if you don’t want to buy insurance for your home loan, you must purchase life insurance cover to give your family financial security. Your family can use the insurance compensation to repay the loan.
Not reading the terms and conditions mentioned in the loan document
Studies suggest that more than 80% of the home loan applicants in India sign the loan documents without reading and knowing the terms and conditions. However, it is a grave mistake that you must avoid as it can have serious consequence later. You must take your time to read every clause mentioned in the loan document and understand it well. If you have any doubts regarding any of the clauses, make sure that you clarify it with the lender and check if the terms are favourable to you before you sign the paper.
Choosing the wrong interest type
A lot of first-time home loan applicants have a tough time deciding on the right interest type of their home loan. In India, most lenders offer home loans on either fixed interest rate or floating interest rate. As the term suggests, under a fixed-rate loan, the interest remains the same throughout the loan tenure. And, under floating interest rate, the interest changes based on several external factors, including changes in RBI guidelines, the economic condition, etc.
If you are taking a home loan for a shorter duration, it better to opt for a fixed rate home loan. But, if you wish to avail a home loan for 15 years or more, you must opt for a floating rate, as you can take benefit of the lower interest rate in the long-run.
If you are applying for a home loan, make sure that you avoid the above mistakes and take your time first to assess your needs, and financial condition before searching the right lender.
