7 Mistakes to Avoid When Applying for a Home Loan

For most of us, buying a home is an emotion and a serious commitment. In the excitement of buying the dream home, we barely scratch the surface of how a home loan works and which bank offers the best loans and end up making mistakes that we could have easily avoided.

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So, when you finally decide to purchase a home, it's crucial to scrutinize the home loans at your disposal in the same manner, you shortlist your property. 

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If you're at this stage and buying a home is on your mind, these tips will help you avoid some common mistakes while selecting a home loan. 

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Make sure you have a healthy Credit Score

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A thriving credit score is the first step in getting a home loan. Make sure you have a healthy credit score so the bank can analyze your creditworthiness with a positive outcome.

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The bank will investigate your repayment history report informing you about your eligibility through this study. If you have a poor credit score, these 5 tips can help in getting a home loan with a low credit score.

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Generally, a credit score above 700 is satisfactory for a bank to provide you with a home loan with a low-interest rate. Hence you must check your credit score before applying for it. You can click here and view it.

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Identifying hidden charges in Home Loan

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Home loans are readily available nowadays, so you must compare multiple financial companies and identify the right one.

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A lack of research would lead to finalizing a financial firm with hidden charges, high processing fees, and no flexible repayment options.

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So you must double-check the banks you have shortlisted and go through their terms and conditions and home loan schemes with laser focus.

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This helps you in avoiding higher EMIs or unnecessary charges.

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Don't take a short tenure

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Most reputed financial experts in their study have reported that a person should avoid short-term loan repayment at all costs.

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A longer tenure would ease the pressure on EMIs.  

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Failure to do so can lead to repayment of higher EMI, which could be detrimental to your credit score in the longer run.

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Never take a housing loan more than your capacity

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As per reports published by money view, most people who cannot pay their home loans have overestimated their repayment capacity. This means they have taken a home loan and were unable to manage their expenses.

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Your EMI outflow should be only 30 % of your income. Now, if you are an individual who does heavy monthly expenses and has taken out a loan with a high EMI amount, you can land in a huge financial crisis.  

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Besides this, if you are in your early twenties and planning for a home loan by 30, then look at these 7 awesome financial tips that will help you pave a good financial roadmap by the time you plan on buying your first home. 

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Always set up emergency funds

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During the covid-19 pandemic, 60% of people lost their jobs, so they could not pay their loans to the bank. This negatively affected the credit score of the person concerned, and they had to pay hefty fines.

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Always set up emergency funds to avoid such issues whenever a crisis arises. This would help you avoid hefty fines from the bank, and your credit score would remain healthy.

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Never ignore home loan insurance

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Home loan insurance is the protective shield that protects you from any unforeseen situation. If a person faces a tragedy like an accident or death, the home loan insurance companies settle the borrower's amount in these unfavorable situations.

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The best way to take advantage of home insurance is to merge your home loan EMIs with a premium amount. In this way, your premium for the home insurance would be deducted along with your EMI. 

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Take time while doing the signatures

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You must read the finer print of your home loan conditions and avoid any element of surprise later. If possible, validate your agreement with your lawyer and check if the terms and conditions do not have a scope of factors that can cause a problem later in the year. 

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Nitin Bhatia, a famous financial advisor, reported numerous cases where a client has done blind signatures in the home loan agreement and found out in the later stages that their home loan served as a collateral loan. Make sure you avoid this complication at all costs. After all, you don't want to be on the receiving end of this mess!

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Additional Tip: If you are confident that you will repay the bank within 5 to 10 years, then it's best to choose a fixed interest rate. But if you intend to repay the interest in 20 years, then it's wise to choose a floating interest rate.

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Note: A fixed interest rate remains unchanged irrespective of the RBI decisions. A floating rate changes with the RBI rate of interest.

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Takeaway

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Now that you know the nooks and corners of how to maneuver a home loan, we hope that you will avoid these seven common mistakes while applying for one.

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Since taking home is a long-term investment, keeping the information above would help you choose the best financial institution and save money in both the long and short terms.

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Good luck with the house move.