A roof over your head that you can call your own, is something that you have always craved for. Now that it is time for you to buy a home, you have to take each step carefully so that there are no pitfalls later. Here are seven mistakes that all would-be homeowners should avoid while availing for a home loan.
- Not being aware of your credit history
All prospective lenders take into consideration your credit history by looking at your CIBIL credit report and score to evaluate your repayment capabilities. It is highly recommended that you pull out your Cibil report as a hygiene check atleast 6 months prior to applying a loan. If your score is lower then 750, work towards getting to that mark by checking if there are any errors (such as incorrect data entries), and fix them. Take charge of any settlements or written-offs in the past by repaying them back to have a clean track record. Rectification takes a fair amount of time, so make sure these things are done well in advance of applying for a home loan.
- New credit application
When you are in the market shopping for a mortgage, make that the only credit you are applying for. Till at least six months ahead of taking a home loan, do not apply for a new credit card or any other loans. If you do so, your prospective home loan lender may be discouraged by the fact that there are too many hard enquiries (the kind of enquiries that other lenders make) on your credit report and reject your home loan application or possibility lead to reduction of loan amount due to existing obligations.
- Not enough research done on the prospective lender
Like a lender scrutinizes your loan eligibility, you too should carry out enough research while selecting the appropriate lender for your home loan. Talk to your friends who have taken recent home loans and consider their recommendations. Carry out your own background check on each lender, by reading all the matter you can find on them online and offline. Reading reviews from existing or past customers about their home loan experiences may turn out to be really helpful. If you spend enough time researching on the right home loan 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 gives you an in principle approval of a certain amount of loan that they are willing to lend at indicative interest rates, before you actually apply for a loan. You have to submit the necessary documents that are required for pre-approval, after scrutiny of which a lender will judge your creditworthiness and grant you an in principle approval. Going through this process makes a lot of sense before you identify your property. Since the lender will already scrutinize your abilities beforehand, your actual loan application process will become shorter and easier.
- Overshooting your limits
Lenders will always be in pursuit of taking mortgage customers on board, and may at times offer you a loan that is way beyond your means. But just because someone is making an offer, does not mean you take it. Carefully consider whether you can truly afford what is being offered, taking into consideration all your current and possible future expenses. In fact, you should try to increase your EMI and decrease the tenure of your loan to the greatest extent possible. This is called debt optimization and helps you save money in the long run.
- Trying to time the mortgage market
There are times when you will find people telling you that you will benefit much more if you postpone your purchase decision till such time there is a drop in the rate of interest. You find yourself waiting and in the process may lose out on buying the property that may have been perfect for you. Do not try and wait for the “perfect” time. If you have found the perfect house and you think you can afford a loan go in for it. On the other hand, if you do not have enough funds for a down payment or cannot really afford a mortgage at this stage, don’t take the leap if the interest rates are low.
- Signing documents before you understand them
Taking a home loan is not as easy as buying furniture, and there are several terms and conditions and jargons that need to be decoded. If you have made a final decision to go in with a lender, make sure you understand each and every aspect of the loan documents before you put your signature down to seal it.
Avoiding these cardinal mistakes while applying for a home loan, may save you a lot of trouble later and ensure that you have optimum savings even while you are servicing your loan.