7 Home Loan Mistakes You Should Avoid

Having a home of their own is the dream of over two crore Mumbaikars. However, possessing shelter on your head in the country's financial capital requires a huge amount of funds, which only a few can afford to pay upright, paving the provision for a home loan, which simply put is a secured loan to purchase a property and offer the same as collateral. It provides high-level funding at economic interest rates and specified tenure, with the amount borrowed repaid via EMIs (Easy Monthly Installments). After repaying the decided loan amount, the property rights are transferred back to the borrower. In case of not paid on time, the lender has the power to recover the outstanding amount by selling the property in question. 

Types of home loans

• Home Loans
• Home Construction Loans
• Home Extension Loans
• Home Renovation Loans
• Plot Loan
• Balance Transfer Loan

What are the criteria requirements for a home loan?

• Your current age and loan tenure: An individual's age plays a vital role during the sanctioning of a home loan. The younger you are, the greater the chances of approval, with the advantage of having a longer repayment tenure. 
• Financial Profiling of the customer: Income stability plays a vital role when applying for a home loan. Be it the working class or business, a steady income is a must.
• Credit Score: The higher the credit score, the more chances of rapid approval, with records of the past clean.
• Any Other Financial obligations: Lenders will oversee your existing liabilities, such as car loans and credit card payments, to ascertain if you can repay the loan. In the case of no outstanding dues, your loan will get approved at a faster pace.  

However, despite fulfilling most of the criteria, the borrower fails to tick certain boxes, which we’ll discuss in the following blog. Thus given below is a list of home loan mistakes you should avoid. 

1. Unaware of your credit history

Before applying for a loan, remember to check your credit history by looking at the report and score generated by CIBIL, especially considering the last six months before your loan application. Having a score of at least 750, below which, your odds could seem low. Ensure there are no errors and clear all the past settlements. 

2. Not doing enough groundwork research on the lender  

A similar practice to what the lender adopts in determining the lending of a home loan, it is an added benefit to research the lender providing you with the funds. Talk to people and acquaintances who approve their loans and take recommendations. Search the internet, reading the reviews of past customers and their experiences. Engaging in this exercise will save time and money in the long run.

3. Application for new credit 

When shopping for a mortgage, make sure that is your only credit. Do not apply for credit cards or loans for at least six months before taking the loan. Doing so may discourage the lender, who may feel there are too many enquiries on your credit report, which could lead to a non-approval or reduction in the loan amount. 

4. Going ahead without a pre-approval 

A pre-approval is a process by which a lender gives you a principle approval of a certain amount of loan they are willing to lend at the interest rates indicated before applying for a loan. The process requires you to submit the necessary documents, post which the lender will undergo an examination to determine your creditworthiness and accordingly sanction the loan. This will make the overall process of you acquiring a loan shorter and more manageable. 

5. Not knowing your financial bandwidth 

Lenders may lure borrowers with mortgages, offering them a loan beyond their financial capabilities. At this time, the customer must consider if the loan is viable, given their current and future expenses. On the other hand, optimising your debt by increasing your EMI and decreasing your tenure can help you save money in the long run. 

6. Refusing an insurance cover

Home loan borrowers must take insurance coverage to protect their families from any sort of financial-related stress. In unforeseen circumstances, insurance can help the family clear the outstanding amounts and take a life cover that includes your liabilities. 

7. Basing your decision to apply on the fluctuating interest rates

While applying for a loan, many outside parties will try to impact your decision, suggesting waiting until the interest rates drop. As a result, you may lose the opportunity to secure the perfect home. On the contrary, if you have insufficient funds for the down payment and cannot afford the mortgage, avoid getting swayed by the low-interest rates. 

Applying for a home loan could be a time-consuming and tedious process. Nevertheless, if you have a plan outlined and keep in mind the driving forces, it could be worth all the effort.