With the rise in prices of the property, buying a home seems a very difficult task. Even if you decide to buy one, it is not at all possible with the available funds you have in form of savings, be it in Fixed Deposits, Mutual Funds or just your savings account. Home Loan is the only option left to you to make your dream come true of owning a home. Home loan comes handy when you don’t have enough money to buy a property and so far is the best option to buy a home either for an investment purpose or for residential purpose.
Home Loans being secured loans, are offered at much lower interest rates than unsecured loans like personal loans and credit cards, and you also get very high loan amounts for long tenures up to 30 years. To avail a home loan you just need to get in touch with your preferred lender and provide all the property, income and identification related documents, upon whose verification the home loan is disbursed. Although it seems easy but it might happen that your application get rejected for varied but unknown reasons to you, leaving you clueless about what went wrong.
Top Reasons for Home Loan Application Rejection
Credit Score
Often, a poor credit score is the reason behind your home Loan rejection. All lenders assess your CIBIL/ credit score before approving/rejecting your loan application. Generally, a bad credit score is a result of defaulting payments of your current or past loans and credit card bills. This indicates lender that you may not be able to repay your future home loan on time. Any lender wants to lend only to those where they have less risk , surety of repayments and as your CIBIL is low, they may find it risky to loan to you. Hence, they can reject your Home Loan application.
How to Avoid This
When you decide to buy a home and want to become a homeowner. You need to check your Credit Score. CIBIL TransUnion, Equifax, and Experian are the major credit reporting agencies, and they offer consumers a free credit report (well not CIBIL) a year, that means you can get your credit score three times a year that too free of cost. It’s important to look over your credit score to make sure all of the information over there is correct, and if it is correct but low you need to take steps to fix them and increase your CIBIL.
You need to work on boosting your credit score as much as can, at least up to the score of 750, at this score a majority of lenders prefer lending.
Age of the Borrower
Most of the bank rejects the loan application if the applicant age is more than 50. The reason behind this is Home Loan comes with long tenure for a maximum of 30 years. Hence the lenders want the borrower’s age to be 60- 65 at the time of maturity of the loan. As at the age of 60 most of the people retire and it would be difficult for them to repay the loan.
How to Avoid This
A situation like this can be avoided by adding a co-borrower for your home loan. It can be your spouse, brother or even children. An important point to be kept in mind while adding co-borrower is that the age of co-borrower should not be more than 60 at the time of maturity. This will make lender rely on you and on your co-borrower too and they will lend you easily. The best time to go for a home loan is by the age of 30 and maximum by the age of 35 so that you can have full tenure and high loan amount.
Un-approved Builder
Before finalizing any property for purchase, people go to extents to find out everything authentic about it like location, facility, quality, price, resale value etc. When the buyer is satisfied with all these, only then they approach a lender for a home loan. These are the necessary parameters to assess before purchase, but one of the most important one is to find out the lenders (banks/NBFCs) who are ready to lend to a consumer for the builder’s property. Even when a borrower is eligible, the builder and its property might not be eligible from a particular lender or multiple lenders. In such a situation of builder not being approved/eligible, your Home Loan application will get rejected for a reason unknown to you.
How to Avoid This
When you are looking for a property along with the location, type, khata, and price include builder too in your checklist. Select only those properties which have an approved builder. This will make your task easier and at least your loan application will not get rejected on this basis.
Debt to Income Ratio
If you already have too many loans, the lenders will definitely assess your debt to income ratio. Your total EMI including the loan which you are about to get should not cross 50% of your total monthly income. If your debt to income ratio goes above the half of your income, the lenders might not approve your loan application, considering that you are overburdened with debt/loans.
How to Avoid This
While deciding whether to approve your loan application or not and how much they can offer you for a loan, lenders consider your debt-to-income ratio. Even your previous loan whose repayment is going on can completely decimate the chance of approval of your home loan application. One should avoid buying a new car, making the unnecessary purchase through your credit card and anyone or thing which increases your debt. Instead, take actions to pay down the amounts you currently owe on your credit cards.
Make extra credit card payments whenever possible for you, and try to do to boost your income by changing your company or by another way.
Property Approval
Bank generally don’t lend for the properties which are not approved by the government, Municipal Corporation and by other local bodies. Lending for such property is a risk and illegal too. Banks avoid The home for old properties too as their resale value is very less.
How to Avoid This
To avoid rejection based on this criteria step should be taken at the time of property selection itself. When you select a property check for its approval from the local bodies and whosoever required. Check for the year of construction too. If the property is approved that means the property is legal and banks will easily lend you if you fulfill the other criteria.
Income
Income is the major reason behind most of the rejections in case of home loan application. When your income is low and you apply for a bigger loan amount the bank rejects the application as you are not eligible to lent such a big loan amount.
How to Avoid This
Adding a co-borrower can help you in this situation and you can get your desired loan amount. Adding a co-applicant increase your eligibility and hence you can get a bigger amount loan. A co-borrower provides a kind of security too to the lenders and they are ready to lend you. Before you apply with any lender, make sure that you use Home Loan Eligibility Calculator to find out the maximum loan amount and tenure you are eligible for.
