Home Loan: Everyone’s own home is a dream. For this, people collect capital for a long time and some people fulfill their dream by taking home loans from banks. Taking a home loan is a long-term financial responsibility. In this case, if there is a mistake in the decision taken on the home loan, it not only reduces the chances of getting the maximum home loan but it also affects the future repayments. Necessary preparation should be done before loan application to avoid any such situations. Here are information about five such mistakes that home loan applicants should avoid.
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Avoid these five mistakes in the application of Home Loan
- Reduced amount of down payment: According to the RBI guidelines, lenders can finance up to 75-90 per cent of the value of a property based on the home loan amount. The final decision on this is taken based on the credit risk assessment of the loan applicant. The borrower is required to collect the remaining amount from another source in the form of downpayment or margin contribution. Home loan applicants should increase the chances of getting the loan sanctioned by raising at least 10-25% of the value of the property. The higher the downpayment, the lower the credit risk for the lenders and the greater the chances of getting the loan application approved. Apart from this, some relief can also be found in interest rates. However, to increase the downpayment amount, one should not tamper with the investment made for emergency funds or financial goals.
- Non-review of credit score: Lenders also consider the credit score while assessing the loan application. Applicants whose credit score is more than 750, their home loan application is more likely to be approved and interest rates can also be relieved. In such a situation, loan applicants should keep checking their credit score at regular time intervals before applying, this will give them enough time to improve their credit score.
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- Not comparing the home loan offers of many lenders: According to the credit profile of the loan applicant, the home loan interest rate, processing charges, repayment tenure, loan amount and LTV ratio can be different depending on the lenders. In such a situation, before applying for a loan, more and more home loan offers offered by the lenders should be compared. The applicant should contact the financial institution to which they are current customers. After this, go to the online financial marketplace and compare the interest rate and loan features offered by many lenders. Submit a loan application to the lenders who are charging interest at the lowest rates for adequate loan amount and optimal loan tenure.
- Not to see EMI Affordability: While examining the loan application of an applicant, the lenders also take into account their repayment capacity. Lenders prefer to give loans to people whose total EMI liability (including new loan for which applied for) is 50-60 per cent of the monthly income. If the EMI liability is more than 60 percent of the monthly income, the chances of getting the home loan application approved are reduced. In such a situation, before applying for a home loan, the current loan should be repaid so that the total EMI liability does not cross the 50-60 per cent limit. Home loan applicants should calculate the optimum EMI through online home loan EMI calculators, thereby reducing the possibility of default in the future.
- Not having home loan EMI in Emergency Fund: There are many factors such as loss of job, sickness, disability etc. due to which income can be lost at any time and this can severely affect the loan repayment capacity. Failure to repay the home loan EMI can result in heavy penalties and can lower the credit score. Apart from this, repaying the home loan EMI from your current investment can worsen the financial health in the future. In such a situation, EMI of at least 6 months should also be managed as an emergency fund.
(Article: Ratan Chaudhary, Head of Home Loans, Paisabazaar.com)