Buying a home requires a large amount of funds and therefore, most people stick to availing a home loan for the same. Since availing a home loan is a long-term financial commitment, it is very important to research and understand the complexities associated with it. Knowing the nuances of home loan before availing it can help you avoid financial traps in the future.
So if you are looking forward to buying a home for yourself, you must ensure that you avoid the below-mentioned financial traps in order to make a well-informed decision.
Not saving a sufficient deposit
- Financial institutions may consider you as a high-risk borrower if you fail to save enough deposit for your home purchase. Thus, lenders may levy a comparatively higher interest rate, additional fees and charges on your home loan. This can significantly increase the overall cost of borrowing in the long run.
- On the other hand, saving a high amount as home deposit can give you a wider variety of lenders and credit products to choose from.
- Moreover, saving for a deposit will strengthen your financial discipline and this will help you make timely repayment of your home loan in the future.
Not Securing a Pre-approved home loan
- Getting a pre-approval for your home loan is very essential in this highly competitive property market.
- Once you successfully get your home loan pre-approved, it will not only help you define your property search but also give you an estimate of the price range you can realistically afford.
Borrowing more than you need
- When you apply for a home loan, the financial institution will assess your income, assets, and liabilities to provide you an estimate of the maximum loan amount that you can borrow.
- If you borrow the maximum loan amount offered to you, then you might end up repaying a large amount as interest. This can prove to be financially burdensome in the long run.
- Therefore, it is essential that you evaluate your requirement and repayment capacity beforehand in order to decide a specific loan amount you wish to borrow.
- With the help of an online EMI calculator, you can also calculate your monthly installments. This will allow you to plan your monthly budget wisely and make timely repayment of your home loan.
Not Researching the Market
- With the increasing number of financial institutions, borrowers have a lot of options to choose from. Due to this, making the right choice can be a daunting task. It is always advisable to compare various loan deals offered by different financial institutions before making the final decision. This will allow you to settle for a home loan that best suits your needs.
- With leading banks and other NBFCs, you can easily avail a home loan with a competitive interest rate, flexible repayment options, less processing fees, and no hidden charges.
La, you should read all the terms and conditions of your home loan agreement carefully before signing it. This will help you avoid any inconvenience in the later stage.