Newsdetail

Five Mistakes To Avoid When Applying For A Home Loan

By Rishabh Chamoli | 2022-11-30

Exercise essential caution and safety before applying for a home loan, say experts
Should I take a home loan? Is this the right time to buy a home? Will it prove to be a big financial burden? These are common questions, which plague the minds of most homebuyers when they decide to purchase a home. Even the process to secure a home loan can at times get tedious, further discouraging homebuyers.

If you are sure about buying a home and opting for a home loan, here are some common mistakes to avoid.

Do not apply with multiple lenders within a short period
Each time you submit a credit application, lenders fetch your credit report from credit bureaus to evaluate your credit worthiness. Such credit report requests initiated by the lenders are considered as hard enquiries, each of which will lead the credit bureaus to reduce your credit score by a few points. Hence, making direct loan applications with multiple lenders within a short span can significantly reduce your credit score, thereby reducing your loan eligibility. Instead, visit online financial marketplaces to make loan enquiries across a wide spectrum of lenders. While these marketplaces too will fetch your credit report to provide you with loan offers, credit report requests by them are considered soft enquiries and do not reduce your credit score, says Ruchika Bhagat, managing director at a chartered accounting firm.

Properly evaluate the financial institution
With so many options available for homebuyers now, one must take advantage and choose a loan that suits ones requirements rather than the other way around. Rajas Jain, managing director of a real estate firm says, Before finalising the bank you want to go ahead with, do check the rate of interest policies, foreclosure terms, and other terms and conditions. Mohit Ramsinghani, chief sales officer of a real estate firm says, One should compare various home loan offerings in the market and then choose the one which is best suited. Interest rates also vary from bank to bank, even a change of a few basis points in interest rate makes a lot of difference.

Do not settle for just any loan tenure
Not everyone needs to take a home loan for 25 to 30 years, and neither should you keep the tenure of the home loan too short. Know what tenure would suit you and then take a decision accordingly. Explaining the need for customisation, Ramsinghani explains, One should select the tenure of their home loan based on their EMI affordability. If you can afford a higher EMI, opt for it (as a higher EMI means that your loan tenure will be shorter). This in turn will mean that a majority of your EMIs would go towards the repayment of your capital amount (principal loan) rather than the interest on your loan. Avoid the trap of deciding your EMI on future income warns Jain. While going for the tenure of the loan, do a calculation on your current income and not on your future expected income. Most of us do the mistake of envisaging a brighter future and trying to encash that in the present, he adds.

Do not forget to create an emergency fund
Post the outbreak of Covid 19, many couldnt pay their EMIs on time as they had not created an emergency fund. Besides, a majority opted for the three-month moratorium only to be told that they would have to settle the same in one go. The best way to prepare for such future uncertainties is to create an appropriate backup in the form of an emergency fund. This fund should be at least six times your monthly mandatory expenses including your loan EMIs. Hence, as soon as you start planning for a home loan, try to simultaneously increase the emergency funds size by at least six times the expected EMI of the new loan, advises Bhagat.

Do not turn your back on home loan insurance
In case the borrower dies, and the dependents are unable to pay off the home loan, the lender has the right to foreclose the property and sell it away to collect the debt. However, the lender incurs massive foreclosure charges to do so. So, if the borrower has an active home loan insurance, it helps the lender avoid bad debts. The policy will also hold the insurer responsible for paying the outstanding home loan amount and your loved ones will be safe. Not taking insurance for your housing loan is the biggest mistake one can make. Always secure your loved ones ensuring that in any predicament or unprecedented situation the house loan is paid off by the insurance, says Jain.

Keep These 5 Things In Mind When Applying For A Home Loan
Dont take a personal loan to make the down payment
Dont take a home loan if your disposable household income is less than three months of EMI for instance, you should take a home loan with Rs 20,000 EMI per month only when your monthly in hand salary is at least Rs 60,000
Dont take a home loan for a project, which is not RERA registered
Dont take a home loan if your job is uncertain or if your business sector is under stress
Dont take a home loan if you are going through a divorce, family dispute, or any litigation with unknown liabilities.