Buying a home is emotionally and financially, a huge decision. At times, we could be so excited about having a house of our own that we might apply for a home loan without much planning. As a result, we could miss out on the best home loan offers or, worse, find it difficult to repay the loan on time. In this article, we are going to discuss 10 mistakes that home buyers must avoid while buying a new house.
Not Getting Pre-Approved Loan Before Looking for a House: Preapproval for a home loan means the sanction of the loan limit by the lender before the property is finalised. Banks pre-approve home loans based on the income and the credit score of the applicant. A pre-approved home loan gives the borrower an idea of how much loan amount eligibility. It is a good idea to approach the lender of your choice for a pre-approved home loan before finalising the property.
No Self-Assessment of Creditworthiness: Your credit score, or CIBIL score, is the first and the most important factor that determines your eligibility for any loan. A credit score of 750 or above qualifies you for a favourable home loan offer. Hence, it is important to be aware of your credit standing before you apply for a home loan. Assessing your creditworthiness gives you an idea of your loan amount eligibility. Moreover, it also increases your negotiating power when it comes to the loan terms.
Not Doing Proper Research: With digitalisation, accessing a home loan offer has become very convenient. Multiple financial institutions are now offering customised schemes to meet the growing demand for home loans. Therefore, it is critical to do thorough research prior to applying for a home loan from any lender. Lack of research may end up in you paying unnecessary fees or a higher EMI. Essentially, you must double-check your home loan requirement, plan finances, review the loan terms and conditions, and identify hidden charges, processing fees, and home loan repayment options. Only then should you choose the appropriate bank/NBFC and scheme accordingly.
Not Comparing Home Loan Offers: Availing a housing loan quote from a lender can take some time because it usually requires speaking with a professional and providing financial documentation. While relying on the first quotation of the home loan you receive from the lender, can save you some time but it most probably will not save you money. It is entirely possible that another lender could offer you a better deal that saves you money over the loan term. Hence, getting multiple quotes is the best way for buyers to find the right lender and get the best possible rates and terms on their housing loan. Compare home loan offers as it is the best possible way to get the information.
Overborrowing: This is another very common mistake that home buyers often make. People often apply for a loan amount which they cannot afford to repay. While lenders do consider your monthly income while determining the loan eligibility, it is highly recommended that you too ensure your repayment capacity by analysing your financials.
Opting for Shorter Repayment tenures: Typically, you should avoid taking out a home loan with a shorter term. The shorter the loan term, the higher the EMI, and a higher EMI implies a higher risk of default during repayment. While shorter loan terms reduce your interest expense, a longer term lowers your EMI and makes the loan repayment much easier for you. However, if your monthly income and financial prudence allow you to go for a shorter tenure, you should consider it to save on interest.
Not Purchasing Home Loan Insurance: Most borrowers are unaware of the dangers of not securing their liabilities. To protect their families from financial hardship, home loan borrowers must purchase adequate insurance coverage. In the event of an unforeseen emergency, home loan insurance can assist the family in paying off their home loan obligation. You may also purchase a life insurance policy that covers your liabilities as well as your assets.
Spending All Your Savings: Purchasing a home is unquestionably costly. Saving for the down payment alone can take a long time, but it's worth it to put in the extra effort to save more money than you think you will need. Spending all of your savings on down payment and documentation (property registration, stamp duty, etc.) could put you in a bind when it comes to other hidden or unexpected costs, leaving you vulnerable in an emergency.
Not Saving Up Enough Money: Before buying a house, you must be aware that there are a number of other expenses apart from the loan EMI. The very first and the most obvious one is the loan down payment that you make to the lender. Apart from that, there are numerous other expenses that a house owner must pay such as the registration fee, stamp duty, house tax, and insurance, among others.
Not Researching the Neighbourhood: Of course, the house itself is the most important factor to consider, but researching the neighbourhood is equally important. If the neighbourhood or other environmental factors are not ideal, you may not enjoy your new home as expected. To avoid this, it is recommended that you research the neighbourhood before making a decision. Examine neighbourhood school ratings and crime statistics as well as the proximity of restaurants and shopping malls.
While buying a house is definitely exciting, you must remember that it is also a huge financial investment. When it comes to financial investments, it is critical to make decisions based on facts rather than emotions. If you keep the aforementioned points in mind, you can easily avoid some of the most common real estate mistakes that home buyers often make.