A home that you can call your own, is something that you have always craved for. A home loan is a long term financial commitment for the borrowers, as it involves a longer tenure, a larger loan amount, and an emotional decision. But, when taking out a home loan, do we prepare ahead enough? Borrowing a home loan without proper research can damage your financial situation. While applying for a home loan, you should be extremely careful so you don’t end up with a lender or an item that sometimes doesn’t suit you. What are the common mistakes that all borrowers should avoid while applying for a home loan?
Not being aware of your credit history
Your credit history is something all prospective lenders take into consideration to evaluate your repayment capabilities. As the CIBIL credit report indicates your creditworthiness, It is highly recommended that you pull out your CIBIL report as a health check at least a half year before applying for a loan. A credit score of 750 or above is considered as a healthy score by many banks and financial institutions. If the score is below 750, work towards getting to that benchmark by checking if there are any errors, and correct them. Paying off any outstanding credit card bills or loans will help you restore or enhance your credit score. The delayed payments will have a negative impact on your credit history.
New credit application
Whenever you are in the market looking for a home loan, make that the main credit you are applying for. Do not apply for a new credit or loan, at least for the last 6 months ahead of taking a home loan. When you apply for a loan, the lender will do a hard inquiry on you. If you apply for new credits or loans, lenders may be discouraged by the fact that there are too many hard inquiries on your credit report. This may lead to rejection of your home loan application or possibly lead to reduction of loan amount due to existing obligations.
Not enough research
With the increasing demand in home loans, multiple financial institutions provide customized schemes meeting one’s needs. Hence, it is essential to do proper research before applying for a loan from a particular lender. Borrowers need to double check their prerequisite, plan their finances, actually look at agreements, recognize hidden charges, and flexible repayment. Carry out a background check on each lender, online or offline. Reviews of existing or past customers turn out to be really helpful. If you get into a right lender, you will end up saving a lot of money not just while you are taking the loan, but in the long run as well.
Not considering a pre-approval
A pre-approval is a process when a lender has agreed, in principle, to lend you money towards the purchase of your home but hasn’t proceeded to full or final approval. You need to present all the important documents that are required for pre-approval, after scrutiny of which a lender will judge your reliability and grant you an in principle approval. Since the lender will examine your capacities in advance, your real loan application will become shorter and easier.
Overshooting your limits
Lenders will continuously be in quest of accepting home loan clients, and sometimes may offer you a credit that is far past your means. However, in light of the fact that somebody is making a deal, doesn’t mean you take it. If your monthly expenses are high and you take a home advance with a higher EMI sum, this might prompt an enormous financial crisis. Carefully consider whether you can truly afford the offer or not, taking into consideration all your present and possible future expenses. You can also use the home loan EMI calculator tool to plan your EMI beforehand. In fact, you should try debt optimization, where you increase the EMI and decrease the tenure of your loan.
Trying to time the mortgage market
You may have heard someone advise that delaying your buying decision until the rate of interest drops will benefit you much. Trying to wait for the perfect time may end up in losing out on buying the property that may have been perfect for you. If you found a property of your interest and you think you can afford it, go in for it. On the other hand, if you are not in a position to afford the mortgage or don’t have enough funds to make down payments, try not to take the jump assuming the interest rates are low.
Understanding terms and conditions:
There are several terms and conditions put forward by lenders for purchasing a housing loan. Once you decide the lender, ensure you understand every single part of the loan documents before you put your signature down to seal it.