Buying a home is a big decision or milestone in everyone’s life. If you are ready to buy a property, here are the top 5 mistakes to avoid when taking a home loan. Housing loans are the best solution to fill the gap between our financial condition and the future security.
Loan borrowers should be cautious in assessing their credit health, comparing the best offers, and negotiating the interest rates. The fundamental aspects banks consider for sanctioning a loan are the availability of collateral to secure the loan, fund flow history, and credit report of an applicant.
Mistakes To Avoid When Taking A Home Loan:
1. Inaccurate self-assessment:
The biggest mistake buyers make is not including their monthly expenses while calculating the repayment capabilities, The banks will look at your liabilities what you show them on paper not what you actually spend. If your monthly expenses are high and you take home loans with higher EMI you’ll end up in a huge financial crisis.
Never depend on future income such as salary increment and income from your new side hustle. Instead, consider your present financial situation. Your EMI outflow should not exceed 30-40 percent of your monthly income. It is advisable to do a study of your future expenses like medical emergencies before applying for a home loan.
2. Signing the agreement without reading:
After your loan application is accepted by the bank
- Various charges on the loan: lenders levy various charges such as processing fees, admin fees, legal charges, document handling fees to process the loan application. Go through these charges and make a note for future reference. Make sure to refer to banks and lender’s websites for the latest charges applicable.
- Prepayment and Foreclosure Clauses: These clauses are governed by certain regulatory guidelines based on the type of interest opted for. Before signing the loan agreement, borrowers should refer to the schedule of charges and terms and conditions related to pre-payment or foreclosure of the loan.
- Clauses related to default: The Borrower will be considered as default if he/she is not making the payment of interest or principal for a certain period. The loan agreement mentions various clauses related to loan default.
- Disbursement Schedule: For under-construction properties, lenders disburse the loan amount based on the construction stage. This schedule will define the timeline for subsequent disbursements to ensure the builder gets payments on time to complete the property. The disbursement schedule should be understood thoroughly and agreed upon by the builder as well.
3. Not Opting In Insurance:
Home loan borrowers should take adequate insurance cover to protect their families from financial distress. Ensuring your home against fire, natural calamities are critical. Apart from property insurance, lenders offer life and medical insurance to make sure of regular loan repayment. Not securing your liabilities is a risk. It’s highly recommended to take insurance cover to avoid risk.
4. Not Tracking RBI Announcements:
The central bank decides on the repo rate every couple of months based on the nation’s economic condition. Keeping an eye on these announcements will make sure to check that if you are being charged fairly by the lenders.
The government and other regulatory bodies like RBI and NHB (National Housing Bank) have taken several initiatives and Schemes such as Housing for All by 2022 and Pradhan Mantri Awas Yojana (PMAY) to benefit all participants economically.
The RBI has reduced the repo rate in recent times to keep the home loan interest rates a decade low to boost the realty sector during this pandemic times.
5. Lack Of Proper Research:
It is one of the mistakes to avoid when taking a home loan. Make sure you do thorough research about market trends, offers before deciding. Understand factors like should you consider banks or NBFC’s when applying for a home loan?
NBFC’s fix interest rates as per prime lending rate whereas banks apply floating rate linked to Marginal cost-of-funds based lending rate (MCLR). The advantage of NBFC’s is the reduced paperwork incase if you can’t produce the documents requested banks are not available you can choose NBFC.
You must take necessary precautions and learned steps to make the right decisions at the right time. You should not apply for a home loan just because your family members or friends suggested. Rather, you should apply for a home loan to meet your finance requirements and buy your dream home.
We hope this article on Mistakes To Avoid When Taking A Home Loan is helpful and informative to you.
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