Long repayment tenures of up to 30 years and huge loan amounts in case of home loans need long term financial commitments from the home loan borrowers. Any incorrect decision or choice taken by a home loan applicant can lower his chances of opting for an optimum home loan, which furthermore negatively affects his future repayments.
As a home loan applicant, you must know that availing of a home loan is one of the major financial decisions that one takes in their life because of the involvement of long term financial commitment. Currently, home loans are available at a rate as low as 6.65% p.a. Availability of low home loan rates often create the delusion that purchasing a home is often affordable & within reach by availing of a Federal Bank Home Loan, Tata Capital home loan or home loans through other lenders. However, you require understanding that availing of a home loan only because they are available at a lower interest rate may be a massive mistake, which holds the probability of landing one into financial trouble.
Availing Federal Bank home loan, Tata Capital home loan or home loan through other lenders with zero proper research or introspection is definitely not a smart way of getting indulged into a long term commitment. As a home loan applicant, you require ensuring that you hold the potential of repaying the home loan EMI on time without hampering your financial health. As home loans today can even be availed through HFCs like Tata Capital home loan, LIC Housing, PNB Housing, Reliance Home Finance etc., which incorporate less stringent evaluation process unlike banks like State Bank of India, Federal Bank home loan etc., many home loan applicants make the mistake of opting for a home loan without factoring in some of the crucial parameters. Doing so, in turn, makes them sweep into a morbid debt trap.
Here, we will mention five missteps that a prospective home loan applicant must avoid for securing their approval chances & long term financial health.
Avoiding to accumulate sufficient corpus for home loan margin contribution or down payment
RBI guidelines permit lenders like Federal Bank home loan, Tata Capital Home Loan etc., to fund up to 75 to 90% of the property’s value based upon the home loan amount. The final proportion is usually decided based on the credit risk assessment of the lenders of home loan applicants. The rest of the home loan amount needs to be contributed by home loan applicants from their own resources in the form of down payment or margin contribution amount. Thus, home loan applicants must first try and accumulate nearly 10 to 25% of the property’s value for ensuring their financial preparedness for taking up home loans.
As making a higher margin contribution or down payment amount lowers the home loan lender’s credit risk, those home loan applicants that make a higher-margin contribution or down payment amount hold higher loan approval chances at a generally lower rate of interest.
Thus, those home loan applicants that look for lowering their overall interest cost must aim to create bigger corpuses for contributing towards their home loan down payment. However, when creating this corpus, ensure to avoid compromising your investment corpuses meant for attaining important financial goals and your emergency fund. Else, the emergence of any financial exigency or maturity of crucial financial goals may propel one to take up loans at a higher interest cost.
Avoiding to review credit reports before submitting a final home loan application
A credit score is an important factor considered by lenders when examining an applicant’s credibility. Home loan applicants with a credit score equaling 750 and more hold higher chances of availing of home loan approval at a considerably lower rate of interest. Thus, applicants looking to apply for home loans through Federal Bank home loan, Tata Capital home loan or home loan through other lenders must fetch their credit reports periodically. Doing so provides sufficient time to the ones having lower credit scores of below 750 to take the required steps to ameliorate their score.
Avoiding to strike comparison of multiple home loan offers
Rate of interest, loan repayment tenure, processing charges, LTV ratio and loan amount offered by lenders can widely vary based on the home loan applicant’s credit-linked profile. Thus, home loan applicants must compare all the available home loan offers from multiple lenders before making their final application for a home loan. Applicants must begin by first approaching those financial institutions with whom they share an existing relationship in the form of savings, current, fixed deposit accounts etc. After this, they must visit online lending markets for comparing rates and other home loan features provided by other lenders. Your final application for a home loan may it be with a Federal Bank home loan, Tata Capital home loan or any other home loan lenders must be with the one charging the lowest interest rate for optimal loan repayment tenure and sufficient loan amount.
Failing to examine your EMI affordability
Home loan lenders usually factor in the repayment capacity of home loan applicants when evaluating their applications. Lenders generally prefer lending the ones with overall EMI obligation, which even includes your new home loan EMIs, to be under 60% of your monthly income. The ones exceeding this specific limit hold reduced chances of availing of home loan approval. Thus, applicants of home loans surpassing this limit must try and lower their obligation for loan repayment by adopting either of the 2 ways, i.e. by prepaying a few of the existing debts or by choosing longer home loan tenure or contributing a higher down payment amount for their home loan.
Also, applicants of the home loan must take the assistance of online EMI calculators specifically designed to know one’s optimum EMI basis their repayment capacity. Submitting an application for a home loan after being aware of the optimum EMI can lower your chances of EMI default in future.
Failing to factor home loan EMIs into exigency fund
Financial emergencies like illness, job loss etc., can come up at any time and can negatively affect your loan repayment capacity. Failing to make home loan EMI repayment on time can cost huge penalties and even low one’s credit score. Though one can redeem their existing crucial goal investments for making repayment of home loan EMIs, opting for this step can massively impact their long term financial health. Thus, you, as a home loan applicant, can ensure timely repayment of home loan EMI in the course of emergencies by including your six months’ expected EMI obligation into your emergency fund.