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*Top 5 mistakes to avoid when applying for a home loan*

 ~Attributed to Neeraj Dhawan, Managing Director, Experian India~


Buying a home is an emotional decision, a place where you create memories that stay with you lifelong. But do we plan enough while borrowing a home loan? Are we sure that the home loan scheme is the best in industry?



Borrowing a home loan requires analysis and planning, as it is a long-term and expensive commitment. Getting a loan without proper research may damage your financial well-being. While applying for a home loan people need to be very watchful so that they don’t end up with an incorrect scheme or incorrect lender.


Following are the common mistakes while applying for a home loan:

1. No self-assessment: The first mandatory step before applying for any loan is to have a healthy credit score. A credit bureau like Experian provides you free and unlimited credit reports, which is quite easy and convenient to download. A credit score above 700 may lead you to a favourable scheme. This will also give you the power to apply for a loan through the best banks. The lenders will evaluate creditworthiness; a poor credit / repayment history will drop the score and the borrower won’t be eligible for good home loan schemes. In India, only 7% of the home loans sanctioned in the industry are given to customers with Experian Score 300-700.


2. Lack of proper research: Home loans have become quite commonplace and are easily available. With the increasing demand, multiple financial institutions provide customised schemes meeting one’s needs. Hence, it is very important to do proper research before applying for a loan from a particular institution. Home buyers needs to double-check their requirement, plan their finances, check terms and conditions, identify hidden charges, processing fees and flexible repayment options to name a few and accordingly, select the appropriate bank and scheme. Nowadays, many websites allow you to compare the home loan products offered by different banks. Lack of research may lead you to paying unnecessary charges or higher EMI.


3. Shorter the tenure, higher the risk: As far as possible, it is advisable to not opt for a shorter tenure home loan as shorter the tenure, smaller the loan amount. This also leads to a higher risk of default in payment of EMI considering the high EMI amount. The eligible amount would depend on various factors like age, credit history, and repayment capacity. Also, you need a high credit score and good repayment history to avail higher amount and get favourable terms and conditions. A longer tenure will ease your EMI and meet your financial objectives.  


4. Repayment capacity: The biggest mistake which people generally do is to not include their monthly expenses while calculating their repayment capacity. The bank generally looks after your liabilities while granting a loan. If your monthly expenses are high and you take a home loan with a higher EMI amount, this may lead to a huge financial crisis. Your EMI outflow generally should not exceed 30-40 percent of your income. One should not depend upon future events such as an increment in your income and instead consider your present financial situation before opting for a bigger loan. Looking at the current situation, it is always advisable to do a thorough study of your expenses before applying for a loan or selecting an expensive property.


5. Not taking any insurance cover: Home loan borrowers should take proper insurance cover to protect their families from financial distress. In case of any unforeseen contingency, the home loan insurance can help the family to clear off the dues. Multiple insurance products cover home loan, like taking a life cover which includes your liabilities. Not securing your liabilities is a risk which most borrowers do not recognize. It is highly recommended to take cover to protect your family members from any financial burden

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