Beware First-time home buyers!

Buying your dream home is a massive investment of one’s lifetime and requires tremendous research about the property, the builder, the policies etc. Taking a home loan is a long term commitment; it becomes crucial that the buyer doesn’t get carried away by lucrative deals and offers. You may end up paying more or getting inefficient service if you choose the wrong scheme or lender for your home loan. There are many mistakes committed by first-time home loan borrowers, which can prove to be destructive for their finances.

Here are the top 5 mistakes committed while taking a home loan:

Avoid selecting your lender first

Most people prefer to go to banks calculate their eligibility as per to know whether their finances will be adequate or not for a loan. Mostly, they are deceived, since the lenders may offer some thriving deals to make money. It’s beneficial to check your eligibility factor online and know easily how much approximate amount of loan you are eligible for.

Borrowing beyond means

Obtaining money more than their income source allows is another misstep which most people make. Banks grant the loan on the basis of your eligibility, income and liabilities, but they don’t scrutinize your existing expenses. However, if your current expenses are immense, despite of that, if you take a loan which results in high EMI payment, you may end up in a bad debt trap. It is always better to lower your budget if your current income and expenses levels are not favourable.

Opting a false loan scheme

In the current economy times, banks are initiating different overwhelming schemes for home loans. Remember, there are some loan schemes in which the rate of interest remains fixed for the initial years and thereafter the loan becomes a floating one, which is linked to the bank’s base rate or prime lending rate. People choosing such schemes should be careful to understand if they have the scope to keep the EMI or tenure changes that will be unveiled when the floating rates kick in, which can be considerably higher! A lack of understanding over a loan scheme or a lack of repaying capacity when higher interest rate kicks in can only result in difficulty in servicing the loan!

Ignoring to review cost

It is always advisable to bargain regarding the interest rates, EMIs, etc. Since, apart from your income and payment structure potential, your negotiation skills will also be considered. And as a prudent loaner, get all the information about the processing fees, legal charges and other hidden costs before deciding on the loan amount.

Neglecting insurance for your home loan

Most borrowers do not recognize this risk, in case, any demise happens to you unfortunately during the tenure of the loan. The home loan that you have taken should not be a burden on your family. By insuring your home loan with a life insurance and a critical illness policy you can benefit your family members with a home and not a home loan. In case of the death of the borrower, the life insurance cover can provide the family with a monetary cover. And for the critical illness policy, if in case the borrower is not able to earn due to any critical illness, this policy will provide financial assistance wherein the interest amounts can be paid.

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Source-secondary

Hidden costs disclosed!

While availing the home loan, most of us forget to factor in the hidden costs involved. Customers normally notice these fees or charges once the deal is done and by then, it is too late. These costs can influence the total cost of the product. The benefit of knowing about hidden costs involved is that these vary from one financial entity in the market to another and some institutions may wave these completely, if you negotiate. Let’s take a sneak peek at some of the additional costs that is borne by the borrower but not mentioned to him clearly at the sanctioning of the loan.

Processing Fee: A valid amount of money is charged by all housing finance companies which comprises a processing fee and other administrative charges. The specific amount for this fee differs from one bank to another however, is less for public sector institutions in comparison to private lenders.

Legal Valuation Fee: Before sanctioning the home loan, all housing finance companies carry out a thorough legal verification of the property. The borrower has to bear the charges as legal fees of the lawyer undertaking this kind of verification.

Interest on term before EMI initiate: There lies a certain division between the disbursement of the first loan installment and start of the EMI. During this period, definite interest is imposed by a financier which is termed as the broken period interest.

Prepayment Penalty: If the borrower chooses to prepay the home loan before the tenure gets completed, the bank will charge a prepayment penalty from the borrower. Plus, a service tax is also imposed on the prepayment penalty. But, as per RBI, this clause has been abandoned for floating interest rate home loans

Rescheduling fee: When the interest rate gets altered by the bank or in case the borrower determines to prepay certain portion of the outstanding loan amount. The home loan tenure and EMI structure has to be rescheduled to match the prevailing conditions, the borrower has to borne a rescheduling charge assessed by the bank.

Conversion Charges: The bank charges a certain amount, when a borrower decides to convert the home loan from a fixed rate type to a floating rate type or vice versa. Additionally, a service tax is levied as applicable.

Miscellaneous Fees: The banks may charge the customer several types of miscellaneous fees that are not mentioned earlier. Such fees incorporate charges for obtaining a copy statement of account and copy of original documents that have been submitted by the borrower while availing the loan.

So, ask the financial institution to give you details on the fees and charges involved, read these carefully and then take your decision accordingly.

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Source- Secondary

Home loans- avoid these mistakes !

Buying a home is a very tedious process for individuals since there are many decisions involved. We often tend to forget the things to be avoided since we focus more on the things to do. Here are some points which should be looked at and some mistakes which should be avoided:

Checking credit score:
Before you apply for a loan, be well aware of details such as CIBIL score/credit score. It would be better to get your credit scores on a regular basis to avoid identity thefts. Credit score is a very important condition which is checked when you apply for a home loan so it is advisable to have a good credit score.

Not researching options well:
Home loans are very popular products available with many banks but with different conditions. Usually many people don’t take the effort to research the varied loans offered and thus have chances of missing out on a good deal. So, it is advisable to window shop a little and evaluate the interest rates, other fees and charges, services, the time the bank would take to pay out the loan, etc. Your original house documents would be with the bank from where you will borrow so it is important that you choose the right bank, which would be safe as well as economical. It is also important to start researching on the loans offered, six months before you start the property search. Don’t try opting for credit cards and personal loans because it is possible that your loan application might be rejected by your lender if he finds confusion in your CIBIL report.

Pre-approved loans not considered:
Most banks would offer you pre-approved loans on the basis of the relationship you share with them. This helps in saving a lot of time during loan processing. When you have a good relationship with the bank, they will know about your history more and the processing would become easier for them.

Over leveraged Loan:
Do not just opt for a loan because the bank is going to offer you a higher value loan. First check If the loan is affordable for you and if you have the ability to pay back the monthly EMIs. The tip is to look out for avenues whereby you can increase the EMIs and to save money on interest by reducing the loan period.

Read the clauses well:
Get a legal consultant to verify your loan documents. Read and be aware of each and every clause in the application form before you sign the loan papers. If, you don’t understand any terms get in touch with the bank.
Thus, have a secure experience when you are buying a home by avoiding these mistakes and make decisions while keeping these points in mind when are you opting for a home loan.

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Source: Secondary