Home Loan Mistake: A home loan is crucial in making your dream of owning a home a reality. However, several common mistakes can jeopardise your chance of loan approval. Atul Monga, CEO and co-founder of Basic Home Loan, advises prospective homebuyers to avoid these pitfalls.
"A low credit score or a history of late payments can be a significant red flag for lenders"
- Says Monga
Your credit history and score are paramount in the home loan approval process. Lenders scrutinise your credit report to assess your creditworthiness. Late payments, defaults, or excessive outstanding debt can significantly lower your credit score, which, in turn, decreases your chances of loan approval.
High Fixed-Obligation-to-Income Ratio (FOIR): Lenders evaluate your FOIR to gauge your ability to manage additional debt, like a home loan. A high FOIR due to outstanding loans or credit card balances can reduce your eligibility for a home loan. Before applying for a home loan, consider lowering your FOIR by paying off debts and avoiding taking on new ones.
Unstable Employment History: Frequent job changes or an unstable employment history can make lenders hesitant to approve your loan application. Lenders prefer borrowers with a stable job history, typically requiring at least 12-18 months of continuous employment with the same employer before applying for a home loan. If you're considering a career move, it might be wise to secure your home loan before making that transition.
Looking For Best Rates: One of the common mistakes is failing to look for the best interest rates and terms. Different lenders offer different interest rates, fees, and terms. While it's tempting to focus on the interest rate, consider the entire loan package, including repayment terms, eligibility, and tenor. Compare multiple lenders to find the most competitive offer.
Other mistakes that can hinder your chances of securing a home loan include:
Insufficient Down Payment: "Failing to provide a substantial down payment may signal financial instability to lenders. Save diligently for a down payment to strengthen your application," says Monga.
Inadequate Documentation: Ensure you provide accurate and complete financial documents to avoid delays or potential denials in the loan approval process.
Overestimating Affordability: Sometimes, borrowers miscalculate their ability to handle mortgage payments, leading to potential financial strain. It's crucial to create a realistic budget and consider all homeownership costs.
Ignoring Pre-Approval: "Skipping the pre-approval process can result in disappointment if you find a home you love but can't secure financing," says Monga.
Securing a home loan is a significant milestone in your journey towards homeownership. By avoiding these common mistakes and demonstrating financial stability, you can significantly enhance your chances of obtaining the loan and turn your homeownership dream into a reality.
