Taking a home loan to fund the purchase of one’s dream abode is quite common. The process always remains the same. First, a person approaches the bank and submits the loan application. The bank then checks the individual’s credit score and other credentials, enlists the possible collaterals if the loan is secured, and if everything is proper, the loan is eventually approved. However, many people tend to make the following mistakes while applying for home loans.
1. Picking the wrong lender
Many people make the mistake of picking a lender without researching or consulting with an expert. Such individuals simply follow adverts or posts on the internet or offline and choose a lender to apply for a home loan with them. This may work out on a few occasions, but, on the whole, one should always check everything about a bank or other lender before approaching them for a loan. Among the first things to check is whether the given lender is licensed. For this, people can check the federal regulator’s list of approved banks and non-bank lenders. If the name of a bank is on the list, it gains credibility immeasurably.
The second thing to consider is the quality of service of a given lender. To learn more about this, people need to check the online reviews and ratings of the lender or speak with their family and friends about their past experiences dealing with the lender. Customer service is key to making any lender the correct or incorrect choice. Therefore, one must speak with the customer service of the lender and ask for information to check the politeness and diligence of the lender’s service representatives.
2. Failing to submit critical documents
Critical documents such as paycheck stubs, copies of credit card reports, and bank statements are needed for lenders to check and verify the background of loan seekers. In fact, every document that is enlisted as “non-negotiable” for loan approval is there for a reason. Essentially, banks need to be 100% sure that the person or business they are giving the loan to is credible enough to make the repayments on time. Each missing piece of paperwork results in loan applicants having to wait even longer to be able to purchase their dream home.
3. Failing to correct errors on one’s credit report
A person’s credit report is a crucial piece of financial evidence needed to verify their credit score and overall creditworthiness to receive a loan. Therefore, while applying for home loans, it is necessary that every bit of information present in that document is accurate and can be relied on for any situation in the future. If there are inaccuracies in the report, that will cause misrepresentations like multiple judgments and phantom defaults that applicants may not have done or be responsible for.
Additionally, it can take about a month and a half for banks or individuals to correct an inaccurate, error-ridden credit report. As a result, people will have to wait several months more for the loan approval and get their hands on their home keys. To avoid this, one must check one’s credit report as minutely as possible to catch any errors or misrepresentations. If one finds them, they should contact their credit card company to sort out the mistakes as soon as possible.
4. Omitting important details from the loan application form
Banks investigate every aspect possible about a loan applicant’s life before approving or even moving forward a step in the sanctioning of a home loan. Therefore, lenders need all the key details to be filled in the application form that they give to the home loan applicants. Not filling in details like email IDs, home and alternate addresses, social security numbers, and others can lead to lenders rejecting the application right at the start. Quite simply, this will set back the process of loan approval and home ownership by several days and even weeks in certain cases.
5. Skipping the home inspection
Home inspection is an important part of the loan approval process. Moreover, home inspections let banks know that a given person will not just take a loan and abscond with it. Inspections help build the credibility of the property as well as the loan applicant. For this reason, one must try and never skip this part of the process when applying for a home loan.
6. Defaulting on loan repayments
This is perhaps the most known and committed error while buying and paying off a home loan. The lenders approve hundreds of loans daily using their investors’ money, and if multiple debtors default on their loan payments, the lender will be in trouble. Therefore, banks and other financial institutions take repayment defaults incredibly seriously. When a person defaults on loan repayments, they will be under increasing scrutiny. Firstly, they will lose points on their credit score. Secondly, and more importantly, if any collateral is attached to a loan, then that will be confiscated to compensate for the repayment defaults.
For these reasons, home loan applicants need to develop strategies to repay their loans before applying for one. Some other mistakes include closing old accounts, not checking one’s credit score, and not considering the loan-to-value (LTV) ratio.