Top 12 Reasons Why Banks May Reject Your Home Loan Application
Do you know what is frustrating? When you urgently need a home loan and the bank rejects your Home Loan application for a reason you don’t even know exists. Read on so you don’t make such a fatal mistake when applying for a home loan.
Buying a house is a big task that requires a lot of effort, time and money. Most of us are not financially prepared for such a big business and borrow money from a bank. Home loans are secured loans that help you buy or renovate your dream home without affecting your savings or other monthly expenses.
Since home loans involve a large amount of money (up to Rs 1 crore or more in some cases) and the term is longer (up to 30 years in most cases), lenders follow a rigorous approval process before granting you the loan. They run all the checks to ensure that you will be able to repay the loan on time without any default. Therefore, if you do not meet the expectations of the bank, the Home Loan application may be rejected.
12 Reasons Banks Reject Your Home Loan Application
This blog will educate you on the lender’s expectations and requirements before you complete your home loan application. Read on to learn about the different reasons why banks may reject your home loan application.
1. Low Credit Score:
One of the main reasons for facing a rejection in a Home loan application is a low credit score. A credit score (CIBIL) is a representation of your credit and payment history. Therefore, any lender before offering you a home loan will check your credit score which is available with many credit bureaus like CIBIL. Lenders consider a credit score of 750 or higher to be a good thing because they can trust you to pay in the future.
Your credit score can be affected by a late or default on a loan or credit card payment. However, if your home loan application is denied due to a low credit score, you will not get a home loan or you will receive a loan with a high interest rate. Therefore, in such a situation, it is advisable to improve your credit score by first paying on time and then applying for a new home loan.
2. Error in a Credit report:
It can happen that even though you have a clean credit history, but due to human error, there is an error on your credit report that lowers your credit score. However, it is recommended that you regularly check your credit score and correct errors (if any) immediately. Credit report plays an important role in Home Loan Application.
3. Repayment Ability:
When you apply for a home loan, a bank representative conducts a quick income background check to see if you’ll be able to afford the loan amount you’ve applied for. However, if you apply for a loan amount that exceeds your ability to repay, there is a chance that your home loan application may be rejected.
4. Nature of Work:
Salaried people are more likely to have their home loan application approved than self-employed people, especially small or new business owners. Lenders see a sense of security and steady income when it comes to salaried employees. However, this stability is missing for new business owners, as lenders are unsure of the financial position. Therefore, if you own a business, your paperwork (proof of income, ITR of at least two years, etc.) must be ready before you fill out your home loan application.
5. Age While Applying for the Loan:
When it comes to age, there are two cases in which a home loan application will be denied: if the borrower is newer or near retirement age at the time the loan is applied for. In either case, the lender is reluctant to approve the home loan application because he cannot examine the lender’s ability to pay. The new person typically has a lower income, and anyone nearing retirement may not be able to repay long-term EMI loans.
6. Lower Valuation of Property:
In general, banks offer loans for the purchase of housing of up to 90% of the value of the property. Regardless of the market rate, banks assess your property based on many factors, such as construction quality, location, age, building condition, etc. Therefore, even if you qualify for a larger loan amount based on your income, the lender may refuse to apply for your loan if your property’s valuation is low.
7. Unstable Employment:
People who frequently change jobs within 6-8 months are not considered trustworthy by most lenders. On the other hand, lenders consider stable employees who work in an organization for at least a year to be ideal because their stability guarantees timely repayment of loans.
8. Poor Credit Score of the Co-Applicant:
Today, most people apply for a home loan with the applicant (spouse, parents, unmarried son or daughter) to reduce the EMI burden. Yes, a joint home loan has its own set of benefits, but if your applicant’s credit score is low (even if they have a decent credit score), the lender may reject your home loan application.
9. Delay in Repayments Guaranteed by You:
You can pay EMI for all loans and credit cards on time and you can have a clear track record. But if you have taken out any loans for your friends or family and if they don’t repay it on time, it will reflect on your credit report and can also negatively affect your credit score.
10. Existing Liabilities:
Your home loan application may also be denied if your debt-to-income (DTI) ratio is greater than 30%. So, if you are already making other monthly payments and the lender believes that paying the soft loan installments will use up a large amount of your salary and you may not meet your payments, they may be reluctant to offer you a home loan. Again, the lender will quickly know what other EMI you are paying with your CIBIL report, and then it becomes very important to have a good credit score.
11. Incomplete/False Documentation:
Submission of correct and original documents is important for any loan and is no different than a home loan. By offering you a home loan, the lender risks lending you a large amount for a long time, and it becomes important for the lender to thoroughly check all documents (proof of age, proof of income, title documents, etc.). If you do not submit all the documents requested by the lender, provide incorrect information, or even if your signatures do not match, lenders will not accept your application.
12. Absence of ‘No Objection Certificate’
If the seller of the property you want to buy had a home loan previously, he must have obtained a home Loan NOC also called NOC from the lender, after the loan amount has been paid in full. If he cannot provide you with a Certificate of No Objection (NOC), the bank may reject your Home loan application.
Conclusion – Reasons Bank Reject Your Home Loan
While you can quickly compare home loans offered by various banks and non-bank finance companies, it’s also important not to jump to a conclusion right away. Check if you qualify for the home loan amount you are applying for and if you have all the documentation and credit score. If you have any questions, contact your bank representative and fill out the application form when you are clear about all the aspects so that the lender does not reject your Home loan application.