Top 11 mistakes to avoid while getting a home loan
Perhaps nothing is more comforting than having one’s home to return to at the end of a tiring day and to relax with loved ones. However, buying a home in the face of inflation and economic instability is no less than a mirage for most. On the bright side, taking home loans from reliable sources can help fulfill this dream. Here are some common mistakes home buyers should avoid while availing themselves of home loans:
Not checking or improving credit score
One’s credit score determines any moneylender’s ability to sanction a loan. An individual’s credit score is calculated considering various criteria, including one’s payment history, credit mix, and the total amount one owes. Therefore, it is important to check one’s credit score; if the scores are low, one should take the necessary steps to enhance this score, such as paying credit card debts on time, before applying for a home loan.
Not understanding one’s capability to repay the loan
Often, individuals cannot return the borrowed amount because they have overestimated their capability to repay their home loan. Such challenges typically stem from miscalculating the amount payable, including the interest rates applied to the principal amount. While applying for a home loan, one should check out one’s repayment capability vis-a-vis the aggregate amount repayable and the time it would take to repay it.
Not purchasing an insurance cover
Although one should hope for the best, preparing for the worst is equally imperative. An insurance cover provides one with financial reimbursement on a rainy day and helps with daily expenses and repaying loans. Thus, before taking a home loan, borrowers should purchase an insurance cover that can reimburse up to a considerable amount in case of unforeseen life events, such as an illness or an economic crisis.
Not researching a lender’s background
Frauds by moneylenders are not uncommon, and one can never be too careful when it comes to borrowing large sums for home loans. Conducting a thorough background check on a moneylender, reading online reviews, and enquiring with friends and family members about the lender’s credibility is imperative. Another way to gauge a lender’s genuineness is to contact the Better Business Bureau, which can verify whether any disciplinary action has been taken against the lender in the past. One can also connect with the state’s attorney general to learn more about a lender.
Signing documents without reading them carefully
Skimming through documents and needing to understand the terms therein can lead to several complications at later stages. Borrowing a home loan is a significant decision, and it requires one to fully understand the nitty-gritty involved in the process before plunging in. Thus, borrowers must browse the information in the home loan documents carefully before signing them, seeking prompt clarifications from the lenders.
Opting for home loans with shorter tenures
A home loan with short tenures would imply smaller loan amounts, which can considerably increase one’s EMI amounts. This situation may cause a financial crunch for borrowers, causing difficulties in making ends meet while repaying the loan on time. For this reason, it is better to opt for home loans having longer tenures, i.e., which can be paid over a significant period and in smaller installments.
Not comparing interest rates
Interest rates may differ between lenders. The best bet is to shortlist a moneylender who demands lower interest and mortgage rates while offering flexible EMI options and a longer repayment tenure. Therefore, it is advisable to conduct extensive research on the offers by different lenders and their credibility before zeroing in on a home loan. Such comparisons help borrowers identify the most reliable and affordable choices while fulfilling their financial needs to purchase a home.
Not opting for a pre-approved home loan
A pre-approved home loan requires an in-principal approval of one’s loan before the borrower shortlists a home. The pre-approval process is typically carried out based on one’s credit score, income, and current financial stability. Since loan pre-approval ensures that the borrower is already eligible for a home loan, the processing times for such loans are shorter. Moreover, pre-approval positions borrowers as serious homebuyers and helps them secure lower interest rates.
Not opting for a mortgage loan
A mortgage loan is one in which the borrower provides the lender with an immovable asset, typically a house, as collateral, which the lender returns once the loan amount is fully repaid. Suppose a borrower already owns a home or property while opting for a home loan. In that case, it is a good idea to opt for a mortgage home loan, particularly because such loans entail considerably lower interest rates than ones that do not entail mortgages.
Not checking for closing costs and fees
Closing costs include the fees charged by various individuals, including real estate attorneys and mortgage lenders, who have played their roles in the lending process. Such closing costs are over and above the price of one’s property and include charges for various activities, such as underwriting a mortgage loan, taxes, and real estate commissions. Understanding these closing costs at the outset is essential for a borrower to estimate their total expenditures. Therefore, borrowers need to discuss such overhead expenses beforehand with lenders and plan ahead.
Not maintaining one’s creditworthiness after pre-approval
Mortgage lenders typically check a borrower’s credit scores once during pre-approval and again before finally granting the loan. Borrowers should maintain their credit scores during the interval between these processes so that their loan applications are not rejected at the final stage. Opening new lines of credit or closing existing ones during this period can reflect poorly on borrowers, increasing their debt-to-income ratios and lowering their credit scores. Therefore, maintaining one’s creditworthiness throughout the pre-approval and lending processes is imperative to secure the best deals.