Introduction
Buying your first home is a major milestone, but it can quickly become a stressful experience if you do not have the right guidance. What’s surprising is that many of our clients make the same mistakes even after we’ve warned them. From choosing high-interest lenders to ignoring hidden costs, these common oversights often lead to unnecessary loan hassles. In this article, we’ll break down the 7 most frequent mistakes first-time buyers make and how you can avoid them to ensure a smooth home loan approval process.
- Going to an NBFC for a home loan or opting for private finance:
Non-Banking Financial Companies (NBFCs) often charge higher interest rates even when you have a strong CIBIL score and all required documentation. In contrast, public sector banks generally offer lower rates. Moreover, when the RBI reduces the repo rate, the public banks immediately reflect the changes in their interest rates. However, NBFCs do not facilitate such changes. They tend to increase the interest rates during the loan tenure.
- Not doing thorough due diligence:
Due diligence is an indispensable part of legally reviewing any property documents. Skipping this can create roadblocks in the long run. If there are any discrepancies or missing documents, they should be brought to notice. There should be a proper transfer of ownership, and one must check that there are no disputes attached to the property’s title.
- Agreeing to home insurance from the home loan provider:
Home insurance is essential to protect against damage. However, there is no need to purchase insurance with higher premiums insisted by the home loan lender. As per RBI guidelines, it is not mandatory to have home insurance when taking a home loan. If any unfortunate event happens to the Home Loan borrower then the burden of repaying the loan is faced by their family so it is essential to have home loan insurance.
- Buying a low-value home in the outskirts:
Sometimes, sticking to your budget is essential, but it can force you to buy properties on the outskirts. While you may get affordable options, property appreciation may not be possible. Also, there will be fewer amenities available, which can make day-to-day tasks inconvenient.
- Skipping the pre-approval stage:
Finalizing your dream home before getting a home loan approved is not the right approach. Always get pre-approved so you understand your financial capabilities and how much you can afford. It allows you to set a clear budget so you don’t exceed your repayment ability. Plus, having a loan approved gives you great negotiation power with sellers. - Underestimating the total home loan cost:
Many first-time home buyers overlook the hidden charges involved in the home loan process. This can significantly increase the overall borrowing cost. Stamp duty: Ranges from 4% to 6% of the property’s market value in Mumbai. Registration fees: Usually 1% of the property’s market value. GST: A 12% GST is applicable on under-construction flats, while completed or ready-to-sell properties are exempt. Other hidden charges: Stamp Duty on Mortgage Deed, Mortgage Registration Fee, Processing Fee (1%), Legal & Technical Charges, CERSAI Charges, Insurance one time premium (optional), Notarisation fees, Paper Handling Charges Home Loan Insurance: These monthly payments should also be considered so you get an accurate picture of the total cost and your ability to pay.
- Using up your savings for upfront down payments:
It might seem like a good decision to pay a hefty down payment to reduce future EMIs. However, this can be a serious blunder if the down payment is made using your life savings. This decision can prove costly during emergencies or unforeseen circumstances when you have no savings left, putting you under a significant financial burden.
Securing a home loan doesn’t have to be a complicated or discouraging process. By understanding what lenders expect and avoiding these common mistakes, you can safeguard your interests and your financial well-being. Buying a home in India is often attached with emotional sentiments, but we tend to forget that it’s also about making a smart, sustainable investment. Take the time to plan, do your research, and ensure that your dream home doesn’t become a financial burden. For any guidance on securing a home loan, you can book a free consultation at Swift Consultancy. We can customise home loan plans that fit your needs without any hassle!