Here are some of the common mistakes that most home buyers make when it comes to home loans and how to avoid them.
Purchasing a home can be both exciting and stressful. You need to keep looking for that one home, which feels right for your family and for your budget.
In the excitement and pressure of finding the dream home, many people do not give much thought to one of the most important aspects of home buying -- home loan.
Buying a home and borrowing money for it will be a major financial decision of your life. It requires careful planning and analysis.
1. Not researching enough
Most people go to the bank where they have their savings or salary account and get their home loans approved by them. While it is certainly the easiest choice, it is not the best.
It is a big commitment that you are making for more than fifteen years or so. As such, it becomes all the more important to shop around a bit before finalising a loan.
A difference of even few decimals in the interest rate can immensely affect the money you pay back to the bank.
Not only the interest rate, other fee structures and charges should also be considered.
2. Not negotiating enough
The cost of your home loan is inversely proportional to the effort you put in negotiating with the banks. Most home buyers accept the terms and conditions put by the bank as is. Many of them are not even aware that these terms and conditions are negotiable.
Make good use of your negotiation skills to get the best deals on interest rates and charges like processing fees and other hidden costs. The best way to do this is to shortlist a few banks and let them contend to offer you only the best.
You will be surprised how much difference it can make on the final deal.
3. Borrowing more than you can pay
When shopping for a home, it is natural to fall in love with all those beautiful features and you may be willing to pay those extra bucks for those additional features. However, just because an X amount of loan is accessible to you, it does not mean that you have to avail it all.
The bank simply checks your current income and liabilities to decide your loan amount.
It does not take into account your expenses. If your expenses are high, it is better to buy a property with a lower price.
4. Not considering the additional costs
When you buy a property, you have to think about extra costs over and above your EMI. There are added costs like property tax and maintenance cost. A lot of people tend to overlook these costs. If you will add the entire amount, it could easily surpass your current available income. This will give you a fair idea about how much EMI you can pay each month. Decide the price of your property on that basis.
5. Not taking the insurance cover
Let your family inherit the home and not the home loan. This is another common mistake made by a lot of home buyers.
If you are the sole earning member of your family a home loan insurance is much more important for you. This way, your family will be saved from any financial turmoil, in case of your sudden and unfortunate demise. If you do not wish to take home loan insurance, you can get a life insurance to cover the amount.
Additionally, you should also take critical illness policy. It will cover your home loan liability to some extent, in case any unforeseen event disrupts your income in future.
The author is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India's first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.
