Purchasing a house is surely an amazing feeling. It brings a sense of accomplishment in life. Gone are the days when you needed to save for years to buy your dream house. This is the era where getting a home loan has become easier than it was before. Banks and other lending institutions are offering attractive interest rates on home loans to individuals with good repaying capabilities. Having a good job with a stable income and a good credit score are the two key factors that will enable you to borrow your first home loan.
Just like every other large monetary transaction, you need to be a lot more careful while applying for your first home loan. Sometimes a lesser knowledge about the entire process may result in troublesome situations. There are many cases out there, where people have trapped themselves in unaffordable loans. Therefore, avoiding following traps while taking a housing loan is essential.
Several lenders offer these types of loans so that the borrowers can afford interior designing and other expenses besides their home loan. Though the offers on them are exciting, these are a type of personal loan which might be a high-cost debt. Falling prey to such loans may strain your finances.
Flat Interest Rate Trap
The EMIs on your housing loan covers the principal and interest on the loan amount. So, as you pay the EMIs, both of them reduce eventually. However, in the case of flat home loan interest rates, the interest rate is calculated on the entire principal throughout the tenure. This means you end up paying the interest on the principal amount, which has already been paid.
Not Reading the Terms and Conditions
The terms and conditions are sometimes written in fine scripts, which many borrowers overlook. Reading them is very important to avoid future conflicts. These fine prints often include the prepayment penalties, late EMI charges, etc. Therefore, you must read the entire terms and conditions, including the fine print at the bottom.
Borrowing beyond repayment capacity
To buy a dream house, people often apply for a housing loan which is more than their repaying capacities. Borrowing loans beyond repayment capacity is one of the most frequent reasons why people find themselves trapped in home loan. So, experts advise that you should always apply for the loan amount, which will not be a burden to you in the future.
Some even suggest that you get a USDA mortgage loan if you choose an area that is qualified for the loan. This type of loan is a low-interest mortgage with zero down payments that is designed for low-income families who don’t have good enough credit to qualify for a traditional home loan. Considering your financial situation before availing for a home loan makes it easier for you to repay it.
Lastly, when you are applying for a home loan, pay attention to the above-mentioned traps to avoid falling victim to a home loan that does not cater to your needs. Speak to the a good financial advisor or do your own research to get the right home loan to buy your dream house.