Currently, Home Loan rates are at the lowest, and this might encourage you to opt for it and buy your dream home. Till now, many of you might have started checking for your eligibility and enquiring about different lenders. But, do you think this is sufficient? If you’ve been thinking that your high Credit Score & eligibility are the only factor that decides your home loan approval then you are wrong! Apart from these two factors banks look for several other factors which as a whole decides your home loan approval.
Here is a list of other reasons that can lead to the rejection of your home loan application despite having a good CIBIL score:
Debt-To-Income Ratio
Lenders look for every factor which decides your financial fitness. But most of us consider only Credit Score when applying for a loan. A home loan is a big-ticket loan that has the longest tenure, so lenders are extra careful and check for several other factors including your debt to income ratio. This is mostly considered when you have too many loans on you. To make it easier, let’s understand it through an example: Suppose you are already repaying a car loan, personal loan and your credit card borrowing, in this case, lenders will be concerned to know whether you are in a position to repay the new loan or not before they approve your home loan application. To make sure for repayment, lenders will be checking for your debt to income ratio.
The debt-to-income ratio is calculated by dividing your total monthly debt obligations which includes the minimum Credit Card payments, and all other loans monthly EMI by your net monthly income.
A higher debt to income ratio indicates you have more financial obligations and hence a new loan can further add to it making the repayment difficult. A low debt-to-income ratio represents that you have a good balance between debt and income and hence approves your new loan application.
Defaulter as a Guarantor
This is another factor that may lead to the rejection of your home loan application. A guarantor is a person who signs the loan agreement along with the borrower and assures to repay the loan on behalf of the primary borrower if he/she fails to make the payment. So, if you are a guarantor for any of your friends/family make sure they are not defaulting with their loans as this can lead to the rejection of your loan application.
Tax history
When you apply for a Home loan from a bank, the lenders always ask for your last one to two years IT return documents. In case they are not satisfied with it, they will surely check your tax payment records. If the record is not proper the bank can reject your home loan application. Not having a clear track record for the income tax payment decreases your creditworthiness.
Steps that you should take to avoid rejection:
Add a Guarantor/ Co-Applicant to your loan application
Adding a guarantor or a co-applicant to your home loan application often improves your chances of loan approval. This is because adding a guarantor to your loan assures lenders for the repayment. But, this can go against you if you are adding a co-applicant/guarantor who has a low CIBIL score. So, try to add only those who have a decent credit score. Doing this not only improves your chances for loan approval but also increases your loan eligibility.
Approach NBFCs
Compared to banks and other financial institutions, NBFCs have relaxed parameters for evaluating Home Loan applications and approval. Therefore, Home Loan applicants can approach them in case they think they have chances of rejection when applying through banks.
Apart from the above-mentioned factors submitting multiple loan applications or applying with multiple lenders can also affect your loan approval. When you do this several lenders will be evaluating your application along with your credit report from the credit bureau. This can result in hard inquiry further affecting your creditworthiness.
