Owing an abode of their own is a dream that many strive to achieve in their life. It is a big step involving a lot of financial planning and should not be rushed into whims and fancies or because the home loan interest rates are low. Embarking on the journey of a home loan without proper research and planning can land one in a financial mess later on. There is a lot of planning and research that is involved in acquiring the dream house. Let’s discuss a few common mistakes that one should avoid while getting a home loan – 

• Finalising the lender first – Most prospective house owners approach banks to check their eligibility before finalizing the property. This is one way of doing it but it isn’t always necessary. Usually banks look at the property, location, builder, paper work of the property, applicant’s credit rating, salary, among other things. Hence it is better to approach after finalizing the property and also the builder can direct to a bank with which earlier buyer’s may have taken a loan. This way, it becomes easier to get the loan approved.

• Underestimating the down payment – As per the RBI rules, the bank is allowed to provide only 80% of the property value. The remaining 20% (down payment) has to be arranged by the loan applicant. One has to ensure that they have sufficient savings to make the down payment. One should not assume that when the bank sanctions they can make the down payment with that money. The banks expect to see arrangements made for the 20%.

• Not Negotiating enough – One should short list of banks and then approach them for the home loan. Bargain with them to see who provides the most competitive interest rates. Interest rates are decided based on the applicant’s credit rating, income tax returns, bank statements, etc, hence they are negotiable. There are other costs like legal fees, processing fees, documentation charges, so on. One can ask them to reduce or waive them as well.

• Not having a contingency – There should always be a contingency plan for everything. In the current scenario it is all the more necessary to have a contingency/emergency fund so that one is able to continue paying the EMI. Getting life insurance is one way of having a contingency, in the unfortunate case of the applicant’s demise; the family is able to use the insurance amount to pay the loan.

• Alluring rates – Often lenders offer attractively low interest rates which are usually in the initial year. After that the rates are shifted to market linked rates. It is advisable to do thorough research and checking before accepting it. Floating rates interest change as and when RBI makes changes in the interest rates. This is a good option to choose when the tenure of the loan is longer.

Proper financial planning and research can make buying one’s dream house a hassle free affair during the process of purchasing it and after. It does not have to be a burden if one is judicious and sticks to the plan.