Home Loan Do’s and Don'ts

Do’s and Don'ts Associated with Home Loans

Aakash Jain Posted on April 26, 2025

Overview

Buying a home is often the biggest financial decision you'll ever make, and for most, it involves taking a home loan. Navigating the world of home loans can feel overwhelming, but understanding the key dos and don'ts before you even apply can save you time, money, and potential heartache. This guide will walk you through essential steps to take and common mistakes to avoid when considering a home loan.

Do’s Before Applying for a Home Loan

Check your credit score: Your credit score is a key factor lenders consider. A good score shows you manage debt well and increases your chances of approval with better interest rates. Get a copy of your credit report from one of the credit reference agencies and fix any errors you find.
Work out how much you can afford: Don't just think about the monthly repayments. Consider all the costs involved, such as the deposit, legal fees, valuation fees, and potential maintenance costs. Be realistic about what you can comfortably afford each month without stretching your finances too thin.
Save a decent deposit: A larger deposit usually means you'll need to borrow less, potentially leading to lower monthly repayments and better interest rates. Aim for the biggest deposit you can realistically save.
Shop around for the best deals: Don't just go with the first lender you find. Compare interest rates, fees, and terms from different banks and building societies to find the most suitable option for your circumstances. Use comparison websites and consider speaking to an expert.
Get your paperwork in order: Lenders will need various documents to assess your application, such as proof of income (payslips, tax returns), bank statements, and identification. Having these ready will speed up the application process.
Understand the different types of home loans: There are various types of home loans available, such as fixed-rate, floating-rate, and so on. Understand the pros and cons of each to choose the one that best suits your financial situation and risk tolerance.

Don’ts Before Applying for a Home Loan

Don't make large purchases on credit: Taking out new loans or making big purchases on your credit card just before applying for a home loan can negatively impact your credit score and your affordability assessment.
Don't change jobs frequently: Lenders prefer to see stability in your employment history. Frequent job changes might raise concerns about your ability to make consistent repayments.
Don't have too many outstanding debts: High levels of existing debt can reduce the amount you can borrow and may also affect your credit score. Try to pay down existing debts where possible before applying.
Don't make errors on your application: Double-check all the information you provide on your home loan application. Mistakes or inconsistencies can lead to delays or even rejection. Be honest and accurate.
Don't ignore the terms and conditions: Carefully read and understand all the terms and conditions of the home loan offer before you commit. Pay attention to things like early repayment charges and any restrictions.
Don't rely solely on online calculators: While online home loan calculators can give you a rough idea, they are not a substitute for getting personalised advice from a lender or home loan expert. Your individual circumstances will affect the actual amount you can borrow and the interest rate you'll receive.

Conclusion

Buying a home using a home loan is a big financial commitment. By doing your homework, getting your finances in order, and avoiding common pitfalls, you can increase your chances of a smooth application process and secure a home loan deal that works for you in the long run.

FAQs on Home Loan Do’s and Don'ts

Do’s and Don'ts

What is the 80/20 rule for a home loan?

The 80/20 rule, also called the Pareto Principle, is a general guideline suggesting that you should aim to make a downpayment of at least 20% of the property’s value, and borrow the remaining 80% of the property's value. While not a strict rule, having a larger deposit (closer to 20% or more) can often lead to better interest rates and lower monthly payments.

What is the golden rule of a home loan?

There isn't one universally agreed "golden rule," but a key principle is to only borrow what you can comfortably afford to repay. This means considering not just the principal and interest, but also potential future interest rate rises, property taxes, insurance, and maintenance costs. Avoid stretching your finances to the limit.

What are the major issues of housing finance in India?

Some general issues in housing finance include:

Affordability: Rising property prices making it difficult for many to enter the housing market.
Access to credit: Challenges faced by low-income groups or those with limited credit history in obtaining loans.
High interest rates: Increasing the cost of borrowing and potentially leading to repayment difficulties.
Complex loan products: Difficulty for borrowers to understand the terms and conditions of various loan options.

How can I smartly take a home loan?

Taking a home loan smartly involves:

Thorough research: Comparing different lenders and loan products.
Financial planning: Ensuring you can comfortably afford the repayments.
Building a good credit score: To secure favourable interest rates.
Saving a substantial deposit: To reduce the loan amount and potential interest costs.
Understanding the terms and conditions: Before committing to a loan.
Considering future financial changes: Planning for potential interest rate rises or changes in your income.

What is the ideal credit score for a home loan in India?

A higher credit score is always better when applying for a home loan anywhere. An "ideal" score would typically be in the good to excellent range as defined by the credit reference agencies operating in the relevant country. This demonstrates a strong history of responsible borrowing and repayment, making you a lower-risk borrower in the eyes of lenders.

How long does it take for a home loan to be approved?

The time it takes for a home loan to be approved can vary significantly depending on several factors, including:

The lender: Different lenders have different processes and timelines.
The complexity of your application: If your financial situation is straightforward and all documents are readily available, it can be quicker.
The completeness of your documentation: Missing or incorrect documents will cause delays.
The valuation process: The time taken to value the property can vary.
The current market conditions: High demand for home loans can sometimes lead to longer processing times.

Generally, you can expect the approval process to take anywhere from a few weeks to a couple of months. It's always best to ask the lender for an estimated timeline and to ensure you provide all the required information promptly.