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5 worst mistakes you can make before buying a home

April 13, 2014 12:38 IST

5 worst mistakes you can make before buying a home

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Rajiv Raj

Avoid these at all costs or there goes your dream of owning a house.

For many of us, buying a home is the single largest investment decision we make in our lifetime. Your monthly home loan EMIs take away large chunk of your disposable income.

Here are few factors you should keep in mind before applying for a home loan:

Buying a house in a metro is an uphill task given the way real estate prices trend up. While there are a few fortunate ones who can buy a house usinng their own money there is a large section which struggles, battles and goes for a home loan to secure a roof over their heads.

To catch up in the race to buy a house, many a time, borrowers neglect small but big facts about the credit they avail and repaying the same. This eventually impacts their credit score and hence CIBIL score.

As more and more banks take CIBIL score -- a number that shows how timely you are in repaying your credit -- seriously there is a need to be as system compliant as possible.

Here are a few factors you should keep in mind before applying for a home loan:

Excessive buying

Many borrowers splurge before even figuring out the right property. Some buy their dream sofa set and some buy a car as the new home generally comes with a parking lot.

All these things come, of course, on loans. These loan repayments are visible in the bank statement and credit reports. This can adversely affect your cash flows, which has impact on your loan eligibility. And your credit score.

The author is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India's first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.


Photographs: Dominic Xavier/Rediff.com

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Sprucing up

Typically, banks insist on your recent bank account statements.

A loan officer typically checks your cashflows in and out of the bank account.

Many a time people borrow cash from your friends and relatives and spruce up the cash quotient of their account for a pre-approved loan. It does not work.

The bank will take another look at your bank statement when it comes to actual disbursement and if they find unusual withdrawals, you will find it difficult to explain.

This is especially true for self-employed professionals and businessmen. Don't get into window dressing your accounts.


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Missing payments

While preparing for a home loan file, do not forget paying your bills, especially your credit card outstanding. If you miss it paying by due date, you not only end up paying late fee and interest, you also pay in terms of lower credit score or CIBIL score.

To put simply, low credit score is a big concern on your home loan eligibility. So, pay your bills on time.


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Borrowing for others

There might be occasions when friends and relatives may request you to be a co-applicant for reasons being personal or procedural. Whatever be the reason and whatever be the financial status of your friend avoid being a co-applicant in someone else's loan.

This pulls down your affordability of a loan.

Such existing loans stretch your debt to income ratio, leaving little scope for your home loan.


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Job hopping

Changing jobs may lead to different salary structure. This may change your take home income. If variable component of your salary increases in comparison with your previous salary structure and your assured income month on month goes down, your home eligibility may go down.

In sum, it is sticking to a deadline-whether in work or payments that matters. After all, it all about this famous cliche: A stitch in time saves nine.


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