Top 5 mistakes to avoid when applying for a mortgage
Buying a home is an emotional decision, a place where you create memories that will stay with you for the rest of your life. But are we planning enough by borrowing a home loan? Are we sure the home loan system is the best in the business?
Borrowing a home loan requires analysis and planning because it is a long term and expensive commitment. Getting a loan without proper research can hurt your financial well-being. When applying for a home loan, people need to be extra vigilant so that they don’t end up with the wrong program or the wrong lender.
Here are the common mistakes when applying for a home loan:
The first mandatory step before applying for a loan is to have a good credit rating. A credit bureau like Experian provides you with free and unlimited credit reports, which are quite easy and convenient to download. A credit score above 700 can lead you to a favorable plan. It will also give you the power to apply for a loan from the best banks. Lenders will assess creditworthiness; a bad credit / repayment record will lower the score and the borrower will not be eligible for good home loan programs. In India, only 7% of sanctioned home loans in the industry go to clients with an Experian score of 300-700.
Lack of proper research
Home loans have become quite common and are readily available. With the growing demand, several financial institutions offer personalized programs to meet its needs. Hence, it is very important to do proper research before applying for a loan from a particular institution. Homebuyers should recheck their needs, plan their finances, check terms and conditions, identify hidden fees, processing fees, and flexible repayment options to name a few and, accordingly, select the bank. and the appropriate program. Nowadays, many websites allow you to compare the mortgage products offered by different banks. Lack of research can cause you to pay unnecessary fees or higher IMEs.
The shorter the term of office, the higher the risk
As far as possible, it is advisable not to opt for a mortgage with a shorter tenure period because the tenure period is shorter, the loan amount is smaller. This also leads to a higher risk of EMI defaulting given the high amount of EMIs. The eligible amount would depend on various factors like age, credit history and repayment capacity. Besides, you need a high credit score and a good repayment history to qualify for a higher amount and get favorable terms and conditions. A longer tenure will lighten your EMI and meet your financial goals.
Repayment capacity of the mortgage
The biggest mistake people usually make is not including their monthly expenses when calculating their repayment capacity. The bank usually takes care of your liabilities when granting a loan. If your monthly expenses are high and you take out a home loan with a higher EMI amount, it can lead to a huge financial crisis. Your EMI output should generally not exceed 30-40% of your income. You should not depend on future events such as an increase in your income and rather consider your current financial situation before opting for a larger loan. In view of the current situation, it is always advisable to do a thorough study of your expenses before applying for a loan or choosing an expensive property.
Do not take insurance coverage
Mortgage borrowers should purchase appropriate insurance to protect their families from financial hardship. In the event of the unforeseen, mortgage insurance can help the family pay the premiums. Several insurance products cover mortgage loans, such as life coverage that includes your liabilities. Not securing your liabilities is a risk that most borrowers don’t recognize. It is strongly recommended that you take cover to protect your family members from any financial burden.