10 Common Mistakes First Time Home Buyers Make

10 Common Mistakes First Time Home Buyers Make

Purchasing a home is one of the most significant milestones one can achieve as a successful individual. However, unlike purchasing groceries, buying a home requires a little homework. Since this is often a one-time activity, not many of us are aware of the actual process of making this big-ticket purchase. Moreover, we are new to various aspects such as stamp duty, registration, home loans, down payments etc. and hence end up making some mistakes.

Here’s a consolidated list of some of the most common blunders committed by first time home buyers. Let’s also find out how to avoid these mistakes.

Mistake 1 – Not Shopping Around Enough

Buying a home is often an exciting prospect, and in the heat of the moment, it is fairly easy for you to get tempted to settle down for the first lender you come across. However, that could be one of your costliest mistakes. It is extremely important that you look for various home loan offers, and compare them on the basis of interest rates, flexibility in repayment terms and more importantly the credibility of the lender. Opt for a trusted product like Standard Chartered Bank Home Loan or the one offered by a leading bank or housing finance company of the nation.

Mistake 2 – Not Checking Your Home Loan Eligibility

You must understand that your home loan application will only be approved if you are an eligible candidate for the loan. If not, your application will be turned down, and this will reflect in your credit report. In such circumstances, there is a high chance that your subsequent applications will be rejected as well, thus making it exceedingly difficult for you to obtain the loan. Hence, you must ensure to check the eligibility criteria of your chosen lender, and only if you fulfil them all, should you go ahead and apply for the loan.

Mistake 3 – Paying Minimum Down Payment

More often than not, purchasing a home will require you to opt for a home loan. After all, you may not have more than just a few lakhs, and in some cases over a crore rupees lying around in your bank accounts. In this case, you will need to approach a bank or an NBFC to lend you the desired amount. In order to verify your ability to repay the home loan, the lender often requires you to pay at least 20% of the market value of the property as the down payment.

Most first time applicant’s falter here; They pay out the required 20%, and rely on the lender for the remaining 80% of the amount. You must understand that you are free to pay more than 20%, and if possible you should. Not only will it decrease your loan amount but will also help you repay your loan in the form of smaller EMIs, thus making it easier for you to manage your day-to-day expenses. Moreover, you will save a substantial amount of money that would have otherwise gone towards the interest component on your loan.

Mistake 4 – Taking an Excessively High Loan Amount

Depending on your income level and your credit history, you may be eligible for a substantial loan amount. When such a great perk is on the cards, it is obvious for you to get tempted to buy a bigger, more equipped home in a posh locality. However, before you do so, you must analyse your financial situation. You should take into account the hefty EMI that you will be responsible for paying, while still managing the living expenses of your family. While it may all seem fun and play in the beginning, an exceedingly high loan amount may start taking a toll on your finances making it difficult for you to keep up with the repayment schedule.

Mistake 5 – Not Purchasing a Home Loan Insurance

Life is an uncertain journey, and none of us know what it will unfold in the coming time. Just in case, you were to face serious illness, disability or death, your family can come under the immense burden of paying off this big-ticket loan. To avoid such a dire situation, you must buy an adequate insurance cover for your home loan and safeguard the interest of your loved ones.

Mistake 6 – Not Securing Ample Information about the Builder or Developer

In the eagerness of purchasing a home that is seemingly perfect and within budget, a large number of homebuyers disregard the reputation or the history of the builder or developer, only to regret it later. A home is one of the most significant financial investments of your life, and you must make sure to thoroughly check every aspect related to its purchase. For what it’s worth, waiting a while before making this purchase, is much better than buying a property from a dishonest builder, both with respect to your finances, as well as your peace of mind.

Mistake 7 – Not Taking Legal Advice

As we mentioned earlier, purchasing a home is a complex process which involves numerous legal formalities such as signing the sales deed, paying the stamp duty and registration fee, and many others. It is therefore essential that you don’t go alone in this process and have a legal advisor on your side to help you understand things, and more importantly to save you from making any inappropriate decisions.

Mistake 8 – Not Considering the Additional Costs

The cost of purchasing a home is not confined to the actual value of the property, but also involves numerous other expenses such as stamp duty, registration charges, legal advisor fee, brokerage fee (if any), home loan processing fee, documentation fee etc. Hence, at the time of calculating the value of the property, you must consider them all. The larger picture will help you manage your finances better, and will save you from any unforeseen expenses.

Mistake 9 – Opting for a Long Repayment Tenure

In most cases, a home loan can be taken for as long as 30 years. Since a Home Loan involves a substantial amount of money, many home buyers fall in the trap of taking a long repayment period to ensure smaller EMI payments. While this may seem to be a promising alternative, you must understand that a longer tenure will significantly increase your interest outgo, thus proving to be extremely costly in the long run. Hence, it is best to opt for a shorter tenure such as that of 15 or 20 years.

Mistake 10 – Not Obtaining Acknowledgement Letter from the Lender

At the time of availing the home loan, you are required to submit the original documents of the property to the bank. Only when you repay the loan in full, does the bank return these documents to you. Since a home loan often lasts for anywhere between 10 and 30 years, it is in your best interest to ask for an acknowledgment letter from the lender stating that the original set of documents are with them and shall be returned to you on the repayment of the loan.

Now you know about all the common mistakes first time loan applicants make while purchasing their first home, you can steer clear of these errors. Keeping these aspects in mind, go ahead confidently to find and purchase your dream home!

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