A home loan is one of the most crucial steps in the home buying process. In fact, successful home buying comes down to how effectively you repay your loans. But since there are a lot of things involved in the Home Loan process, there are chances that you might go wrong or miss out on something important. Therefore, it is essential to know the common mistakes that people make while taking a home loan. The ideal approach is to refer to a complete home loan guide and be alert to the common mistakes while taking a home loan.
Here are the top 5 common mistakes that people make while taking the Home Loan.
1. Not Comparing The Home Loan Lenders:
There are many banks and financial institutions that offer home loans. These home loan lenders try to work on their policies or terms and conditions favorable to attract customers. Therefore, if you compare different home loan lenders properly, you might find the lender that is perfect for you.
Not doing the property research before taking the home loan results in choosing the lender that proves to be ineffective in the later stages. This includes increased Interest Rates, higher processing charges, unsuitable interest calculation methods, higher time for the loan disbursals, prepayment penalties, etc.
Therefore, it is important to compare the Home Loan Lenders on the following points-
- Home Loan Interest Rates
- Type Of Interest Rates
- Time Required For The Home Loan Disbursal
- Down Payments
- Balance Transfer Charges
- Prepayment Facility
- Pre Interest EMI Facility
- The Security Needed
Remember, comparing the Banks or the financial institution is key to getting the right home loan plan.
2. Not Considering Income Debt Ratio
As per the standard, The EMI should be 40% of the monthly income. Not considering the income debt ratio has an adverse impact on the loan repayment. If the EMI exceeds the monthly income by 40% then there are chances that it becomes difficult to manage the finances required for the daily expenses.
Therefore, it is necessary to carefully consider the income Debt Ratio to avoid financial strains. The best approach is to use the EMI calculators for knowing the right applicable EMIs and maintain the perfect Income Debt Ratio.
By using the EMI calculator, you get the detailed breakups in the Home Loan Amount, Interest Rates, Loan Tenure, and applicable EMIs Etc.
3. Not Having Emergency Fund:
Once you take the home loan you have to pay a fixed amount of monthly EMIs. In case if some other financial emergency crops up during the loan tenure, then it becomes difficult to repay the home loans.
In such difficult situations, it is essential to have an emergency fund that can be used for other financial requirements during the loan tenure. This ensures that there is smooth repayment of the home loans and you don’t have to face uncertainties.
At the end of the tenure, this emergency fund can be used for the prepayment of the loan or the EMIs can be increased with the help of this emergency fund.
4. Not Making Appropriate Down Payment
Generally, the banks need 20% of the property value as a down payment for sanctioning the loan. However, paying a higher down payment while buying a home allows you to get the home loan easily sanctioned and get the lower interest rates.
Another benefit of making higher down payments is having lower EMIs and lower net payable interest rates. Therefore, making higher down payments allows you to manage the home loan effectively.
5. Not Considering Other Liabilities:
While planning for the home loan you should consider other financial liabilities. While applying for the loan banks also consider the existing liabilities for the applicant. However, there are certain personal financial liabilities that should be taken into account by the home loan borrower.
The best approach is to list and calculate the other financial liabilities and then plan for the home loan.
Summing Up:
A home loan is the most important step in the home buying process. Knowing the common mistakes to avoid while taking the home loan allows you to be better prepared for home loan-related challenges. The common mistakes that you need to avoid while taking the home loan are Not Comparing The Home Loan Lenders, Not Considering Income Debt Ratio, Not Having Emergency Fund, Not Making Appropriate Down Payment, Not Considering Other Liabilities.
