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Common Mistakes First-Time Buyers Make While Choosing Home Loans
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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.
Introduction
First time home loan? It’s easy to feel overwhelmed. Many first-time home buyers fall into the common traps—rushing into decisions, overlooking hidden charges, or failing to compare the right options.
These small missteps can lead to a long-term financial strain.
This guide highlights the most frequent mistakes and how to avoid them—so you can move choose with clarity.
Table of Content
What are the most common mistakes first-time home buyers make while choosing a home loan?
You might overlook steps like comparing loan types, checking for hidden charges, or understanding the eligibility criteria. Choosing the wrong tenure, skipping foreclosure rules, applying with a low credit score, or not reading the fine print can cost you later.
Avoiding these mistakes early can help you choose a home loan that fits your needs—without unexpected surprises.
Not researching the right type of home loan – fixed or floating
Many buyers opt for the loan that is offered quickly and with minimum hassle—overlooking the fact that your interest structure affects your EMIs for years.
Understanding which type suits your needs is the most important factor when choosing the right home loan.
Choosing without evaluating these can strain your budget later. Comparing them based on your financial plans can help you make a more comfortable and sustainable choice—not a rushed one.
Ignoring processing fees, insurance, and hidden charges
Processing fees aren’t the only upfront costs. Look out for:
These can add up to 1–2% of your loan amount and aren't always disclosed upfront. These costs aren’t always discussed in early conversations, and it's understandable if they don’t show up on your radar right away.
Taking a few minutes to review the full cost structure helps you plan better from day one.
Overestimating loan eligibility just based on monthly income
It’s common to start with your salary as a benchmark when estimating loan eligibility. For instance, "If I earn X, I can borrow Y."
However, banks use a metric called Fixed Obligation to Income Ratio (FOIR), which considers all your existing financial commitments.
This helps them assess how much EMI you can safely repay. If you already have credit card dues or personal loans, your home loan eligibility may reduce significantly.
To get a clearer picture of what fits your budget, not just what you're eligible for—use an EMI calculator. It helps you balance loan amount, tenure, and EMI comfortably.
Choosing a short or long tenure without understanding the EMI impact
As a first-time home buyer, picking the shortest tenure may seem smart but it could affect your monthly cash flow.
Instead of focusing on just picking the fastest repayment, aim to find a balance between current affordability and long-term value. That clarity can make your decision more sustainable.
Not checking foreclosure or prepayment rules upfront
Some loans include clauses that limit how soon or how much you can prepay. In certain cases, lenders might charge a fee for full closure, especially if you plan to switch lenders later.
Make sure you check:
Understanding these details helps you plan better if your income increases or if you want to reduce your loan burden ahead of time.
Applying without improving a poor or average credit score
Your CIBIL score plays a significant role in both your loan eligibility and the rate you’re offered. Even if your loan is approved, a lower score can lead to a significantly higher interest rate. Check your score in advance and take time to improve it by:
Improving your score by even 50 points can create a noticeable difference in your overall loan cost.
How can you avoid these mistakes and improve your chances of loan approval?
Start by focusing on what suits your financial situation, not just what you're eligible for. Compare loans, use calculators, gather the necessary documents, and work on your improving your credit score.
With the right preparation, you’ll improve your chances of approval and choose a home loan that supports your long-term goals.
Even small differences in interest rates or terms can impact your loan experience. Comparing offers helps you find a plan that aligns with your goals—not just one that’s available quickly.
Tools like Kotak’s EMI Calculator offer clarity on your monthly payments. It's a simple way to ensure your repayment plan fits comfortably within your budget.
Keeping your ID, income proof, and property documents ready can make the process faster and smoother. It also shows lenders that you're well-prepared to apply.
Our team is trained to help you decode loan terms, clarify doubts, and structure the right loan for your needs—without any pressure to commit.
Your home loan may offer deductions on interest and principal under various sections of Income Tax Act. Use Kotak’s Home Loan Tax Benefit Calculator to estimate how much you could be eligible to save.
Final Thought - Learn before you loan
To make the most of your first time home loan, take time to understand the type of loan that suits you, review all associated charges involved, check your credit profile, and explore your repayment comfort—not just your eligibility. Using EMI and tax benefit calculators, reading the fine print, and consulting a loan expert can help you avoid common setbacks and choose with confidence.
At Kotak Mahindra Bank, you’ll find more than just financing. From EMI and tax benefit calculators to a dedicated helpline and online application portal, our goal is to support you clearly and in line with what matters to you, at every step.
FAQ
What are the common home loan mistakes made by first-time buyers?
Common mistakes include ignoring hidden charges, choosing the wrong tenure, and not checking foreclosure rules. Many also apply without improving their credit score or understanding the type of loan they’re signing up for.
What should I know before applying for a first-time home buyer loan in India?
Before applying for a first-time home buyer loan, it’s important to review your credit score, compare loan types (fixed vs. floating), check for additional charges, and assess your repayment capacity. Using tools like EMI and tax benefit calculators can help you plan better and avoid surprises later.
Is there a best loan for first time home buyers in India?
There's no one-size-fits-all solution. Your best loan option depends on your income, preferred tenure, risk tolerance (fixed or floating), and long-term financial goals.
What documents can get your home loan rejected?
Incomplete income proof, expired address proof, mismatched PAN/Aadhaar, or poor CIBIL history are common rejection reasons.
Can I get a home loan as a first-time buyer with no credit history?
Yes, but you may need to provide stronger income proof or add a co-applicant with an established credit track record.
What is the best way to compare home loans for first-time home buyers?
Use tools like the Kotak’s Home Loan Tax Benefit Calculator and EMI Calculator to check EMIs, processing fees, and total interest payable.
Disclaimer - This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.
Credit at sole discretion of Kotak Mahindra Bank Ltd and subject to guidelines issued by RBI from time to time. Bank may engage the services of marketing agents for the purpose of sourcing loan assets.
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