How to Avoid Common Home Loan Application Mistakes

Buying a home is a significant milestone. However, navigating the home loan application process can be complex and overwhelming, if you're not well-informed. This may lead to common mistakes that could hinder your loan approval. 

This article explores the common home loan application mistakes borrowers make when applying for a home loan. We have provided practical loan application tipson avoiding them. Understanding these mistakes and taking the necessary precautions can enhance your chances of a successful home loan application.

Mistake 1: Not Researching Before Applying 

Before applying for a home loan, thorough research is essential. Many aspiring home loan applicant skip this step and rely solely on information provided by the builder or seller. Instead, talk to people living in the area to uncover hidden issues. 

Also, verify the property's legal documents to ensure everything is in order. Additionally, compare lenders based on interest rates, repayment options, and other factors to find the best fit for your needs.

Mistake 2: Misjudging Your Loan Repayment Capacity 

Applicants often overestimate their loan repayment capacity. Factors like income, savings, and expenses influence your eligibility. Not focusing on your repayment capacity before applying may lead to financial stress. Carefully assess your finances to ensure you can comfortably manage EMIs and unexpected expenses without jeopardising your financial stability. You can use our Home Loan EMI Calculator to compare EMIs. This help help you make informed decisions while applying for a loan.

Mistake 3: Insufficient Margin Money

You usually get loans up to 70% to 80% of the property amount. The rest of the money is paid out of your pocket. This amount is known as margin money. Relying entirely on a home loan without contributing sufficient margin money is a common error. Paying more as down payment results in lower EMIs and interest rates. 

Mistake 4: Funding Margin Money with Loans 

Funding margin money with additional loans increases financial liabilities. Instead, plan early by saving regularly or investing in a  Fixed Deposit . This way, you can use your savings and avoid the high-interest costs associated with personal loans. For example, if you need ₹5 lakh for margin money, save five years in advance instead of taking out another loan.

Mistake 5: Neglecting Insurance Coverage

Ignoring insurance while applying for a home loan can be risky. Life, health, and home insurance can safeguard you and your family against unforeseen events. A life insurance policy can protect your family from loan burdens in your absence, while a health insurance policy covers medical costs. Home insurance adds an extra layer of security by protecting your property.

Mistake 6: Ignoring Additional Costs

Ignoring additional costs such as processing fees, registration charges, and other legal expenses can lead to financial strain later. It's crucial to account for these costs when planning your budget to avoid surprises after taking out the loan. Always consider the total cost of the loan, not just the principal and interest.

Mistake 7: Not Checking Your Credit Score

Banks will check your credit score before approving your loan. A higher credit score increases the chances of loan approval. Banks might offer preferential interest rates if you have an excellent credit score, preferably above 750. Similarly, a lower credit score can lead to loan rejection.

Mistake 8: Not Reading the Terms and Conditions

Not reading the fine print thoroughly may have long-term implications. There could be additional charges associated with your loan, balance transfer and loan foreclosure terms and conditions, etc. Read the fine print carefully to avoid any hiccups.