Getting a home loan? Avoid these 7 mistakes
New Delhi: Getting a home loan is one of the most important financial decisions of life as it is a long-term commitment which is very expensive. Nowadays, home loans are available at rates as low as 6.7%. The low home loan rates create this delusion that buying a house or flat is affordable and within reach with these loans. However, you need to understand that getting a home loan just because the interest rate is low might be a huge mistake which can land you financial trouble.
Getting a home loan without proper research and introspection is not smart. You need to make sure that you will be able to repay the loan on time without damaging your financial health. Since home loans have become a little more accessible, some people make some common mistakes while getting one which leads them straight into a debt trap.
Here are 7 mistakes that you need to avoid while buying a loan:
1. Finance before committing: A lot of people are looking to buy a house on home loan often make the mistake of finalising the property first and making a deal with the broker only to realise later that the bank has refused to sanction the desired loan amount. Sometimes your loan. What if the people are unable to furnish the large EMI or even the mandatory down payment that the bank demands. This is the reason why it is advised to always have all the details about the loan before finalising a purchase. Choose the right lender, make sure your credit score is high and you are eligible for the loan.
2. Stable job: Home loans are long term financial commitment as often they have a repayment tenure of 15-20 years. It is very important that you a stable job or steady source of income to ensure that you repay your loan on time without missing any EMI payment. While the interest rates may be low at the moment, is your job safe and stable enough to ensure that you will repay the EMIs on time? Given the Covid-induced uncertainty, you need to be sure that your job is secure before you go ahead and get a home loan. Make sure you are financially stable and that your job and salary are secure. Also, have some emergency fund which can help you service the large EMI if you do end up getting fired or experience a salary cut.
3. Default on EMIs or opted for moratorium: If you are one of those people who had trouble paying their personal, car loan EMIs during the lockdown and opted for moratorium instead, getting a home loan right now will be a huge mistake for you. If you witnessed a salary cut or lost your job in the past six months due to the pandemic and it resulted in an EMI default on another loan, getting an even bigger loan os no-no. If getting a house is really important, then keeping your new salary or income in mind, you may have to rejig your calculations and settle for a smaller house as per your fresh loan eligibility and the amount of down payment you can furnish.
4. Contingency Fund: During uncertain times like these, having a contingency fund in place is necessary before taking a big-ticket loan. This emergency fund will protect you from all your financial risks. Given the current uncertainties, you could run into various financial crises in the near future which is why you need to have a sufficient amount saved as an emergency corpus which can help you tide over a temporary crisis such as a job loss, medical emergency etc. Getting a home loan if you already have an emergency fund in place is what you need to do.
5. Joint ownership: If your wife is earning, it is advisable to make her the primary loan applicant since women are offered lower interest rates than men. Women also enjoy low stamp duty benefits compared to men. Besides, having your wife as a co-owner and co-applicant also increases the income tax benefit on account of principal and interest repayment. Under Section 24B of the Income Tax Act, both spouses can claim a tax benefit of up to Rs 2 lakh each on interest payment in case of a self-occupied house, and up to Rs 1.5 lakh each on principal repayment under Section 80C.
6. Down payment: A house or flat is a massive purchase which means the down payment amount is also high. Before you get a home loan, you need to ensure that you have enough funds for down payment. RBI has directed all banks and NBFCs to approve of a maximum 80% of the property value as home loan, with the remaining 20% to be furnished by the applicant. This means that if you are planning to buy a flat say worth Rs 60 lakh, you will have to furnish Rs 12 lakh as down payment. Make sure that you have more than enough to make the down payment without any hassle.
7. Personal use or investment: If you are planning to buy the house for self-occupation purpose and have sufficient funds for down payment and EMIs, this may be the ideal time for you to make a purchase because of the low-interest rates. However, you must know that low rates should not be the reason for you to purchase a house as an investment. The low and stagnant property prices mean that while you may be able to buy a property for relatively cheaper right now, the chances of you realising the appreciation expected from your investment are low.