Taking a home loan is one of the most crucial steps in building or buying a new home. Applying for a home loan involves a lot of research, decision making and keeping required documents ready. Being prepared not just saves time but also efforts. There are times when you are unaware of the many formalities and paper work involved during home loan application. Apart from being loan ready, it is also important to know the reasons for rejection of your home loan application.
Some of the top reasons for which your home loan can be rejected by a lender or a bank are given below.
When a borrower takes a home loan, one of the foremost things that are involved in the approval for the same are credit history and record. The credit history check basically involves determining timely payment of dues and EMIs of other loans, etc. The best way to clear this condition is to be punctual with payments and never miss deadlines on EMIs and credit card dues. You can always keep a check on your credit record by being aware of your bills and repayment dues.
If there is more than one debt in your name, your real income is calculated by subtracting the credit repayments from your income. If according to the lender’s analysis, your repayment capacity seems inadequate, the bank or lender may refuse to offer you a home loan.
In some cases, if you have moved to an address which previously was rented by someone who hasn’t paid huge credit card bills or paid for a loan. And if the previous tenant or owner has given the same address in the bank records, the address could be listed in the database of defaulters. This decreases the possibility of your home loan being approved.
Changing too many jobs also reflects poorly on the home loan application. Banks consider job stability as one of the main criteria for approving a loan for buying a home. Banks insist that the borrower should be employed in a particular firm or company for three years preferably, in order to be eligible for a home loan. If sometimes, the applicant’s company, although reputed seems unstable, the bank reserves its right to reject the loan.
Home loan applications are rejected if the borrower’s age is close to the retirement age. The lender is hesitant to offer loans to such borrowers as it assesses your repayment capacity to be poor or zero, after a few years. However, some banks may be willing to offer short-term home loans. Short term loans for big amounts would lead to a really high EMI, taking away the comfort of availing a home loan in the first place. Therefore, borrower’s age plays a very important role in terms of home loan rejections.
Being a loan guarantor to someone can sometimes be risky. Unless you are sure of the borrower’s repayment capacity, do not agree to be a loan guarantor. Without having any strong reasons for believing in that person, do not sign to be a guarantor. If the borrower defaults in his repayment, you will be held responsible to repay the loan on his or her behalf.
Keeping your credit score high plays a significant role in getting your home loan approved. You should ensure you have a good credit score when you apply for a loan. Your credit score is recorded by CIBIL (Credit Reports and Risk Management Solutions).
CIBIL records incidents such as rejection of loan applications. Such an incident, becomes a part of your credit record. Therefore, it is best to know the result from one bank before applying to another bank. By ensuring this, you will be able to correct your mistakes and not repeat the same errors while applying for the second time.
It is important to file your income tax every financial year, whether or not you receive your Form – 16 from your employer. Lenders and banks check for a clear track record of filing income tax returns of the last two years, before approving a home loan.
Lenders do not accept all types of residential properties as securities for home loans. Properties that have a good resale value, stable price, are in demand and are easy to sell, are preferred by lenders. Ensure that while choosing your property, do not go for something too old. It is also advisable that the property is constructed by a reputed and trusted builder. Also, all the required documents must be easily available. These are the few points related to the property in question, that must be kept in mind in order to avoid your home loan from being rejected.
Any issue with the layout or title of the property could also result in rejection of your home loan application.
Apart from these basic reasons, there are some unexpected reasons for the rejection of your home loan application:
Signing your documents using the same signature as in the attached documents, is very important while applying for a home loan. The signatures on the home loan application form should not only match the document copies, it should also match the documents of the registered bank.
When you fill in your landline number in the home loan application form, the bank authorities will call you on the same for verification purposes. In case, the bank calls you when you are away at work or busy elsewhere, the bank simply considers it to be a case of ‘no response’. Therefore, it is very important you also provide your mobile number in the application form.
If the property you are taking a loan for, has minor rights, then you may be in for some rejection. If the seller has not disclosed the information about a minor having a rights on the property, your home loan application has a high probability of getting rejected.
Lender or banks prefer applicants with a stable job where they have worked for at least a year in the same company. As the bank determines the borrower’s stability as well as repayment capacity by assessing the number of years of employment. So, freshers are not a preferred option when it comes to approving home loans by banks. Also, applicants who have made frequent job changes could also have their applications rejected for the same reasons.
For entrepreneurs with established reputation and stability, home loan approvals are easier to come. However, for those who have just started out, with a low capital and no secure future, home loan applications may not get approved so easily. In these cases, you must ensure the bank of your growth and stability as a business by providing some testimony that can help you bag the loan.
Sometimes even unpaid telephone bills can lead to the rejection of your home loan application. Banks and lenders do not look highly upon late payments or unpaid bills. This only serves as another reason for rejecting your application.
It is imperative that you get a NOC (No Objection Certificate) on any previously closed loan. Banks or lenders reject your home loan application, if you do not provide with an NOC of your old loan that has been closed.
The list is vast and it is no joke to get your home loan sanctioned. Therefore, you must be very sure that your records are clear. Sometimes providing additional security towards your home loan application such as fixed deposits, collateral securities, a guarantor or insurance policies can help you secure the home loan you are looking for.