Home loan: Common mistakes you should avoid

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Buying a house is one of the biggest financial decisions for an individual. Thus, one should not rush through the decision-making process.

Hence, if you are planning to take a home loan, then you should be aware of the following mistakes that people often make:

Not financially prepared

Most people decide to buy property on loan without being financially prepared for it. “Banks ask for a minimum down payment of 20% on the total cost of the home. However, that doesn’t mean you shouldn’t save more. Ideally, work towards accumulating 40% or more which will reduce your financial stress. And, if that is not possible, try to accumulate an amount that you can pay during the loan tenure,” said Harshwardhan Roongta of Financial Suraksha.

Borrowing more than you can afford

“When financing your home, or any other purchase, consider your current financial situation. Ideally, your EMI outflow should not be more than 30-40 percent of your income. Do not try for a bigger loan with a higher EMI, on the premise that you are due for an increment in six months. You will be in a fix, if the increment is lower than expected, or if there are additional expenses,” said Adhil Shetty, CEO, BankBazaar.com.

Not buying any life insurance policy

It is equally important to buy a life insurance policy or health insurance while taking a home loan. In case of any medical emergency, it will act as a shield. In case of your accidental death, your family will not bother at least for other expenses as there is a policy amount to take care of the loan amount.

Taking a loan for a short tenure

Generally, banks provide loans up to 30 years depending on the eligibility of the borrower. But if you take a home loan for 10 or 15 years and couldn’t pay on time, that will cost you more than taking it for longer-term and paying finishing it within the defined duration.

No prior comparison of home loan offers

Nowadays, there are many sites which allow you to compare the home loan products offered by different banks, based on the interest rates, charges, penalties, etc. Home loan seekers should avail of this facility, to avoid selecting the wrong loan product, which may put you in financial distress.