All of us would have a doubt in mind of the approval probability when applying for a home loan. At times even if you have good income, there are chances of getting home loan rejected. The reason for this is banks judge you based on the ability to repay loan. Apart from income various other factors will be taken into consideration such as the applicant’s age, job stability, credit scoring, repayment or payment track record. All these will help in understanding the credit worthiness of the applicant. Some of the main reasons why home loan application is rejected by the lenders are:
- Too many Loans outstanding which is above Income/Repayment Capacity: If you are someone who is already juggling between too many outstanding loans, then there is very less chance of getting a new home loan application approved. Bank will compare your income with the repaying debt, this will bring down the availability of income to repay new loan. The real income considered while approving loan is your actual income minus (all expenses + outstanding loans repayment amount +10% savings from income).If banks figure that a new loan will make you difficult to meet expenses with available income, loan application will be reluctantly rejected by the banks or NBFCs.
- Bad or Poor Credit Card Payment Track Records: Those who have been accumulating credit card dues will start facing the pinch when it comes to home loan application. Your loan application will not be approved if there are lot of credit card dues and defaults. Lender will easily get access to all these information and can even check if you have defaulted payments in the past. Based on this information the banks have the right to reject the home loan application without much reasoning. Apart from credit cards, even telephone or mobile bills, insurance premium defaults will be taken into consideration by the banks and a defaulter in these will face issues during home loan application.
- If You are a Loan Guarantor: It is important to be extremely cautious if you are signing as a guarantor to someone. The risk of default will equally impact the guarantor. Unless you are 100% sure that the borrower will repay the loan amount, do not stand has a guarantor. Also beware of the fact that this can take a toss on your CIBIL scoring. Usually guarantor is required for huge loan amounts, this in other words mean huge risk. In case if the borrower defaults payments, the guarantor will have to clear the outstanding loan amount in order to avoid bad credit rating.
- If Your Residential Address is in Defaulters List: As precautionary moves make sure the residential address you are staying is free from all illegal transactions and activities. Also if you are planning to purchase a property that does not have clear titles, there is high chance of getting loan rejected by banks. Addresses of defaulters will be saved by CIBIL and a quick address check will status of loan borrower. The probability of having home loan application rejected is high in such scenarios. Though it possible to prove your innocence in this matter and get a loan approved, it might take time and you might miss out the property from your hands.
- If Co-applicant has Bad or Poor CIBIL Score: If you are planning to apply for a home loan with co-applicant, the income, CIBIL score, age of the co-applicant is equally important as that of yours. Banks will check the credibility of both the applicants before approving huge loans such as home loan. Having clean payment records, good income and meeting all eligibility criteria will make it easy to get a home loan approved in India.
- If You are a frequent Job Hopper: Consistency is very important in every aspect of life and especially when it comes to job. Being a continuous job hopper will hold you against getting a loan in India. Job hopper will have high chance of being job-less and this could affect the loan repayments. Banks will check for consistency and employer credibility before approving a home loan in India. Being employed with a reputed company and being consistent in job can help you in getting home loan at low rate of interest.
- If You are trying for a Joint Home Loan with Friends or Sisters: Trying for joint loan with friends and sisters is the other reason why most of the home loan applications are being rejected. None of the banks or NBFCs in India will approve a joint loan among friends or sisters. These relationships are not considered as valid for loan requirements. Joint loans are approved only between sibling (brothers), Parents and son and spouses. Others will not be considered as a good relationship for home loans. Make sure the relationship between the joint applicants is provable. Marriage certificate, birth certificates can be used as valid proof in these scenarios.
- Past Records of Loan Application Rejection: In case if you have applied for a loan recently and if it has been rejected, then it is wisely to take a break from re-applying for a loan immediately. Continuously applying for loans will impact your credit score and will have a drastic fall. Whether you are trying for a car loan, gold loan or simply a personal loan, the minute the application is rejected it will be recorded in your CIBIL score. All banks will check your CIBIL score and remarks of the same before approving the loan application. Continuous loan application rejection is a sign of financial insecurity of the loan applicant.
How to Reduce the Chances of Rejection of a Home Loan Application?
Instead of worrying about home loan rejections, it is always a smart move to get it application right at the first go. In order to get the home loan approved right at the first it is important to meet the below criteria before applying for home loan.
- Ensure You have Stable Employment:
First and foremost requirement for applying a home loan is having a regular income. At times even if the applicant has high CIBIL score and low income there are chances of getting home loan rejected. CIBIL score and income should go hand-in-hand, based on these analysis banks will decide how much loan amount should be approved and at what rate of interest.
- Check if You are Meeting all Eligibility Criteria:
Apart from income, the other eligibility factors such as age, employment status, property location and credit score has to be met by the loan applicant. Nowadays checking home loan application eligibility is not a tough task. There are many online website which will give instant information on the eligibility with specific banks and NBFCs.
- Clear Major Outstanding Loans:
Before applying for home loan try to ensure other major loans are cleared. Having too many outstanding debts will showcase financial insecurity in your applicants. No banks will be willing to accommodate such requests and will reluctantly reject the application without further reasoning.
- Ensure to have a Good Credit Score:
Most of the home loan applicants do not check their CIBIL score before applying. It is possible to get information about what CIBIL score each bank is expecting to approve home loan. Thus with this information check if you have eligible credit scoring for applying for a home loan with the specific bank or NBFC.
- Good Tax Paying History:
Just like for all other requirements, good tax paying history will hold value in home loan application. An applicant with good history of tax paying will offer positive signs and banks will find these applicants more reliable. Base of the reliability the loan amount, rate of interest and application will be consider by most of the banks.
What to do Next after a Home Loan Application has been Rejected?
Getting home loan application rejected is not an end. Even if your home loan has been rejected by one bank, there are chances of getting is approved once you meet all requirements. Once loan is rejected, do not immediately apply for another one. Take a break to analyze why the loan was rejected. Go through the below steps to avoid further loan application rejection:
- Know why loan was rejected is important. Spend time and effort to investigate the reason
- Go through CIBIL score and its remarks. This will give a clear picture of what went wrong and how to fix it
- Do an error-check of your details with the CIBIL; at times it can be the case that they have some error in the recorded information. Get this fixed firstly before analyzing further
- Seek legal assistance in case if you are not able to understand why loan application was rejected. In some cases, the reason will not be very evidence, only a legal advisor will be able to scrutinize the application and give a clear picture of why it was rejected by the bank.
Make use of the aforementioned points before applying a home loan in India.