Availing of a home loan in India needs thorough analysis and extensive planning, as it is an expensive, long-term commitment. Borrowing without carrying out proper research could possibly damage a borrower’s financial well-being. While availing of a home loan, you will need to be watchful, so that you do not end up with a lending institution or a loan product that does not suit you at all. We have listed the common mistakes that the borrowers commit when availing of a home loan in India.
No Self-Assessment on Creditworthiness
The compulsory step before availing of any home loan is having a healthy credit score. A credit bureau offers credit reports that are easy and convenient to download. A credit score or CIBIL score for home loan is above 750 will lead you to a favorable scheme. I
t is going to give you the power to apply for a loan via the best lending institution. The lenders are going to evaluate your creditworthiness. A relatively bad credit or repayment history lowers the score and the aspiring borrower is no longer be eligible for good home loan schemes.
Lack of Extensive Research on Home Loans in India
Housing loans have become quite common and are widely available. With a rise in demand, multiple financial institutions have started offering more personalized schemes to meet an aspiring borrower’s demands. Therefore, it is extremely crucial to carry out proper research before submitting an application for a home loan from a particular lender.
Home buyers desire to double-check their needs, plan finances, read the terms and conditions, identify hidden charges, processing charges, and flexible repayment options to name some, and accordingly, select the appropriate lender and home loan scheme.
These days, many websites permit you to compare the housing loans offered by different lenders. A lack of extensive research can lead you to pay extra or unnecessary charges or significantly higher EMI.
Overestimating Your Home Loan Repayment Capacity
The most common and biggest error that most borrowers are prone to is not considering their monthly expenditures when calculating their home loan repayment capacity. A lending institution generally checks your liabilities while sanctioning a home loan. If your monthly expenditure is significantly high and you avail of a housing loan with a relatively higher EMI amount, it could lead to a massive financial crisis.
Your EMI outflow typically must not exceed 30% to 40% of your income. You must not depend on your future events like an increment in the income and instead consider the present lending situation before availing of a bigger housing loan. Looking at the current situation, it’s advisable to understand the expenses before availing of a home loan in India or choosing an expensive house.
Opting for Shorter Home Loan Tenors
To the extent possible, it is always a good idea to not choose a very shorter tenor when it comes to a home loan. The shorter the home loan tenor, the higher the chances of the housing loan amount being insignificant. A direct disadvantage is a higher scope of default in EMI payments, considering the high EMIs.
The eligible home loan amount would be based on a plethora of factors including the borrower’s age, credit history, as well as their true repayment capacity. Also, you will need a high credit score and decent loan repayment history to avail of a sizeable home loan sanction and achieve favorable terms and conditions. A longer home loan tenor is going to ease your EMIs and help you meet your existing financial aspirations.
Not Availing of an Insurance Cover
Housing loan borrowers in India must take insurance cover to safeguard their family members from financial crises. In case of any unforeseen contingencies, home loan insurance can help family members clear their dues. Several top-notch insurance products cover home loans in India. You can opt for a life cover for a sum that includes liabilities. Not securing one’s liabilities is a major risk that most aspiring home loan borrowers fail to recognize.
Falling for Surprisingly Low Teaser Home Loan Interest Rates
Every now and then, lending institutions tend to lure aspiring home loan borrowers with a jaw-dropping home loan interest rate on home loans in India. Often, it is for the first few years and later on, the rates are linked to market-linked home loan interest rates. Or, it may just be applicable for small home loans or only specific to women borrowers.
So, you need to dig deeper and check if the home loan interest rates are actually that low for you. Moreover, as a borrower, you will also need to factor in other kinds of costs – administrative and processing fees, legal charges, conversion fees, prepayment charges, and so on as these could also increase the borrowing rates for you.
There are several advanced tools available for free, like an online home loan calculator or eligibility criteria. With the help of such tools, you can get a fair estimate of the EMI outgo, check your home loan eligibility criteria, adjust the home loan interest rate, and much more. Remember the tips mentioned above and keep a clear mind before you avail of a housing loan in India.
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