Home Loans: Common Mistakes Borrowers Make

There are some common mistakes borrowers make while opting for a home loan. They are listed below:

Home Before Loan

Home buyers tend to first look for a house or property and then go about trying to get a loan. Ideally, one should consider the loan amount that they will be eligible for then assess their finances accordingly to determine a feasible budget for a new house/property.

Poor Creditworthiness

All leading banks and financial institutions assess the creditworthiness of their customers before approving their loans. Many borrowers are not aware of this and are surprised when they find they have been rejected due to poor credit. An individual can get their credit score/report from providers like CIBIL and check their credit standing. In case of a poor score, the borrower can build their credit rating over a couple years and apply for a loan again at a later date.

Not Negotiating:

Many borrowers take a lender’s loan offer at face value. They do not realise that they can get a better deal by negotiating with the lender on a variety of the terms outlined in the loan offer including interest rates, loan amounts, tenor etc. Those with a good credit-standing can bargain for better rates.

Inadequate Research:

There are number of lenders offering home loan products, each one differing in terms of their offerings to meet the varied funding needs of borrowers. However, a lot of borrowers do not bother to study their options and miss out on good offers. They also do not find out about the lender’s reputation or service.

Incorrect Budgeting:

When home buyers take a home loan, they often only assess their finances to cover for loan repayments and do not factor in other expenses that may arise for which they will need to have savings. For e.g. buying a new car or relocating or education expenses or even medical emergencies. A home loan should be affordable after ascertaining all possible personal financing requirements.

Marketing Gimmicks

Many lenders offer attractive rates as part of their marketing strategy to woo customers. Borrowers fail to study the terms and conditions under such offers and opt for these loans thinking they have got a good deal. They later realise the product doesn’t suit them.

Timing Interest Rates

Trying to time the market for lower interest rates is difficult and many borrowers miss out on a good deal by waiting too long for a more attractive loan.

Home Loan costs:

To most people, loans are looked at in terms of their interest costs but they fail to factor in other charges like processing fees,administration fees etc. which add to the cost of the loan.

Unforeseen circumstances:

Most borrowers do not realise the importance of being able to pay off their home loans, which is a huge debt to satisfy, in the event of untimely circumstances e.g. death. Insuring one’s home loan can help meet repayment commitments in such events.

Inadequate funds:

Obtaining a loan may be possible for a lot of borrowers but they do not account for the fact that lenders do not cover the entire amount due for the property. The down payment is usually borne by the borrower prior to receiving the loan amount and not having adequate funds for this purpose can cause a major glitch in the homeloan process.

Avoiding these common mistakes will ensure a smoother and more satisfactory experience when availing home loans.