How to Avoid Common Home Loan Application Mistakes

Mistake 1: Not getting your hands dirty enough

Ok, let us put it in a more prosaic manner. You need to do research before identifying the property and also before zeroing in on the home loan provider. Even before your file your home loan application, there are certain key things you need to research on. First on the property, it is not just enough to meet the builder and see the property. Talk to people in and around the building and get a hang of the problems. See the connectivity from the place and above all, don’t forget to verify the title deeds and link documents.

Before the home loan process, do research on the lender, their policies, practices, and the fine print. By doing such basic preparations and getting your hands dirty, you can avoid a lot of home loan mistakes along the way. Do a thorough comparison of lenders on rates, tenure, moratorium, flexibility, EMI payments, margin to be funded etc.

Mistake 2: Under-estimating or over-estimating your loan capacity

Any loan is a liability and a home loan is no different. What you must keep in mind is that any loan eligibility is based on your income levels, savings, assets, and expenses. All these impact repayment capacity and will be key factors considered by the bank to assess the loan amount. If you are too conservative, you are not leveraging the full capacity to buy a home of your choice. On the other hand, if you are too aggressive, you may end up with a loan and EMI that you cannot sustain over the longer term.

While choosing the home loan amount, ensure that you have sufficient funds to manage the EMIs along with any other emergency expenses. Also, bargain hard and you can get good deals with builders and lenders.

Mistake 3: Not bringing in maximum margin you can

Borrowers often remonstrate why they should bring in their own funds, when the banks are falling over each other to fund you. That is not the point. The home loan must be bought by you and sold to you by the bank. Prudence dictates that you bring in as much margin as possible and only for the balance, you rely on a home loan. If you feel you can afford to service a bigger loan, you can instead opt for a lower tenure with higher EMIs so that your liability is over faster. Again, the moral of the story is to bring in as much of the margin money as you can and only rely on a home loan for the balance.

Mistake 4: Funding the margin money with loans

Today, that is possible, but that still does not mean that you should do it. If you need to bridge a margin gap of Rs5 lakhs, a bank would come forward to give you a personal loan. But that is not the answer. You are only adding another liability. Instead, plan your margin and start a SIP 4-5 years before the home loan date so that your margin can be funded through your savings, rather than by more borrowings. When you save more and bring in a bigger margin, you reduce your EMI tenure and therefore the total interest cost. It works in your favour.

Mistake 5: Not taking adequate insurance

This may sound unrelated, but you must appreciate why it is relevant in this case. You should purchase a life insurance policy and a health insurance policy. It does not directly impact your home loan, but does so indirectly. For example, if you have a healthy policy, you don’t have to use your personal resources in a medical emergency. Also, your life policy is a social security for your family. Apart from that, ensure that your home structure and home assets are insured. Additionally, also take a home loan insurance, so that the home loan does not become a burden in the event of any unfortunate event. Life is so uncertain anyways, and not insuring adequately is a major home loan mistake.

When you file a home loan application, the most important point is to ensure that you are not committing some basic home loan mistakes. Here we have identified five such mistakes, but there could be more. This gives you an idea of what you need to avoid when going for a home loan for your dream property.