A home loan is a commitment between the borrower and the lender. While making any commitment, we think long and hard to be sure we are making the right choice. It is the same with a home loan commitment. There are mistakes loan seekers often make during this process, which can create problems, disappointments, and frustrations for them later on. To avoid these mistakes and from being detrimental to your future financial planning, let’s understand them further.
Considering Interest Rate As The Sole Criteria!
The first thing that any individual does when planning to borrow for a home purchase is scout for the financial institution and product giving the lowest interest rate. An interest rate is only one of the criteria one should adjudge while selecting a home loan product. It is important to look at the terms and conditions of the loan, hidden charges, and the overall suitability of the product to your requirement even before submitting your loan application. If the research is limited merely to the interest rate, you could be putting yourself at risk for future problems with your mortgage.
Side stepping home loan insurance
Many of us have a habit of skipping over aspects that are not mandatory; we probably do this every time we book an offshore airline ticket online and opt out of the travel insurance to save the money. We are ready to take a huge risk to save a small and meager amount. Home loan insurance is also not mandatory, and many borrowers prefer to opt out. We need to understand that home loan insurance acts as a security in case of death of the borrower. In such a case, the insurance company becomes responsible for the repayment of the loan. This removes the burden you may put on your family and provide you a great peace of mind. The cost of the insurance is surely worth it.
Most banks have tie-ups for availing home loan insurance, but borrowers need to know that they can choose their own insurance partner basis their research. The insurance can be purchased along with the inception of the loan or even at a later date.
Over Ambitious Borrowing
Prospective borrowers need to be true to themselves while deciding the amount of loan they plan to obtain. While the bank determines your loan eligibility by evaluating, amongst other things, your income and expenses, the loan applicant needs to exercise their own self-analysis to understand their individual borrowing limit. Every individual needs to consider current, future, and unexpected expenses when formulating their borrowing capacity. Being over ambitious in setting this capacity can cause great deal of heartburn later. Reaching out to home loan expert to understand the borrowing limit can be of significant value and avoid major problems in the future due to non-payment of loan.
Credit Score Ignorance
Every borrower should be aware and study their credit report before applying for a home loan. A credit report can be availed from credit rating agencies such as CIBIL. This report maintains the credit history of each individual and assesses the credit worthiness based on the punctuality and efficiency in repayment of past loans. This is an important criteria for a bank in approving a home loan, and if you have low CIBIL score, you need to rectify the score by ensuring you repay all of your past bad debts before applying. This will save you a lot of effort & time in the home loan process and ensure your home loan application does not get rejected due to a poor credit report.
Not Reading Carefully Before Signing the Dotted Line
Due to sheer laziness, borrowers often forget to spend time going through the terms and conditions before signing off on a home loan. This can lead to serious repercussions in the long run. More importantly, it is crucial that the borrower understands the terms and conditions in detail. One should not be afraid to ensure all of their questions and doubts are cleared before signing the dotted line.
Each potential borrower should be aware of the mistakes they could make while obtain a home loan and ensure they steer clear of such blunders. The impact of a small slip-up in obtaining your home loan can lead to severe problems for the borrower in the future. As a home loan is a significant financial commitment between the borrower and the lender, it is a clever move to take your time, understand, and evaluate each and every step of the home loan process. In case of any confusion, there are professional home loan experts available to help you make the right decision. Make sure your commitment ends with a smile.
By Sukanya Kumar, Founder & Director, RetailLending.com