Common mistakes to avoid while taking a home loan

With the onset of festive season, property buying warms up and so does the home loan market. Lenders come up with attractive schemes for the prospective buyers, so do the developers.

So it is a right time to reach for your cheque book but if you take some care you can avoid the common mistakes that most people make while taking a home loan.

Click NEXT to read how you can avoid some home loan mistakes.

The author is CEO, Apnapaisa.com.

Apnapaisa is a price comparison engine that allows consumers in India the ability to compare the EMI, , interest rates and other fees for home loans , car loans , personal loans , business loans , credit cards , compare online quotes and features of life insurance , health insurance , car insurance , travel insurance and other general insurance policies in India.

Most people want to know how much loan they will be eligible for before they finalise the property. Nothing wrong with that except that you need not finalise your lender just to get the loan eligibility amount.

If you are below 40 years just multiply your (and your spouse's) yearly gross income by four and that should be a rough and ready amount of loan that you should be able to get.

If you have some existing loans or some special requirements you can use the facilities of advanced calculators at various web sites (www.apnapaisa.com has one). It is not necessary to lock yourself with a lender just to get the loan eligibility.

Imagine falling in love with a property and then discovering that the lender that you had chosen will not fund that property due to some legal/document issues.

While most banks will provide finance for ready-to-move-in properties, some banks do not readily finance a property, which is being self-constructed, or an under construction property.

Also, if the property is very old or is being developed by a relatively unknown builder, the bank might have an issue with providing a property loan. There can also be issues with the wordings of the NOCs etc. required from the housing societies with both the bank and them refusing to budge from their respective stands.

The best way is to select your property and then find out if any other lender has funded for another flat in the same building. That lender should anyway be a part of your consideration set. Also if you approach lenders now you are likely to get slightly better rates as lenders reserve their best rates for immediate disbursement cases.

Not arranging for the down payment in advance?

A lot of people buy under construction property assuming that they can pay the down payment amount proportionately whilst the bank disburses the rest. All lenders without exception insist on your bringing in the entire amount of the down payment before they will make the first disbursement on the property.

Have you window-shopped?

Mantra is bargain and bargain some more. You should shortlist four or five banks and get the short listed banks to compete for your loan. The cost of your loan depends a lot on your ability to negotiate.

Remember that all terms and conditions of a housing loan are negotiable.

Interest rates offered by banks take your income and repayment profile into consideration, apart from, of course, your negotiation skills. Apart from interest rates, also check various charges like processing fees, pre-payment charges, legal fees, valuation fees and other hidden costs.

Not all home loan buyers bother to delve into these issues? Well, that will always remain a debatable point but it is nevertheless wise to check on these issues.

Fixed or floating? Have you understood your interest rate at all?

The State Bank of India home loan scheme (popularly called the 8 per cent scheme) is an excellent scheme but definitely costs more than 8 per cent -- except in the 1st year of disbursement.

In the current teaser rate regimes (a lot of banks have stopped such schemes now) a lot of schemes provide differential lower fixed rates of interest for a lower period and then shifts to regular floating rate after the period is over.

It is important to understand the impact on overall cost of such changes before you choose the type of loan you would want to go for.

Do you want your family to inherit the home loan, not just the house?

If the answer to this one is a resounding no, then it is important that when you take a home loan, take a life insurance and critical illness policy along with it.

Life insurance policies provide monetary benefit in case of an unfortunate incident like death and ensure that your family members inherit your home not your home loan.

Critical illness policy will take care of the home loan liability if your income gets interrupted due to unforeseen, unavoidable critical illnesses such as stroke or organ failure.

At least you (your family) will have one less thing to worry about at an otherwise hassle some time.