When you apply for a home loan, you naturally pray that everything goes right. You have put in so much effort and research into finally submitting your application that you are assertive nothing will go wrong. Now, all you have to do is wait for the day when your application is approved and you finally get to purchase your dream home.
But what happens when your home loan gets rejected?
This will come as a shock to many homebuyers but the reality is that banks do not hesitate in rejecting home loan applications. On the rarest of occasions, it happens that you either forget to consider all factors or make a minor error in your home loan application. This does not mean that you will give up, does it? Securing a home loan is one of the most crucial steps on your journey to buying a home, and it is not possible for you to just give up hope the first time you face rejection.
On the other hand, keep in mind that many applicants get their home loan application approved in the first go as well. We are writing this blog to make sure that you are one of them. While there are a lot of reasons for home loan rejection, avoiding all these mistakes and errors is not impossible either.
To begin with, we want to urge you to start your research on various lenders and borrowers from the very first day. Even before you finalize the home you want to buy or before you begin house hunting, make sure that you have a fair idea of how home loan applications work. Every day, there are hundreds and thousands of home buyers wanting to get their application approved, you need to stand out from the crowd.
All banks have a procedure for verifying the documents you have submitted and ensuring that all information provided by you as a homebuyer is error-free and authentic. Even though every bank has different mechanisms, the reasons that they may give to reject your home loan applications are more or less the same.
Our purpose is to make sure that you are aware of every possible reason that the bank might give while rejecting your application. Once you are aware of these reasons, we believe that you will make an extra effort to do better and ensure that banks do not get a chance to spot a mistake in your application and reject it!
Also Read: What is Home Loan Moratorium?
15 Reasons Why Your Home Loan Application May Have Been Rejected
1. Poor Credit Score
Granted that you may have your strategies to deal with money and finances, banks make it a point to ensure that you have a high credit score from the very beginning. They will find out your credit score through your CIBIL report prepared by the credit bureau. A credit score is a score given to you based on your job history, credit card usage, ability to pay loans, all kinds of payment history, and much more. This score ranges between 300 to 900. The higher, the better.
2. Nature of Work
Just being employed or having a source of income is not enough. Banks may refrain from offering loans to individuals in certain sectors. This is due to the risks that are associated with such industries. For instance, banks may hesitate in approving your application if you are a lawyer, journalist, or are employed with the police department. In such cases, you may be required to refer a guarantor to stand a chance of getting a home loan. If you work in a company that has been banned funding in the past, then that might be a problem too.
3. Frequent Job Change
If you have an unstable job history or are changing your jobs quite frequently, it raises a red flag. Taking a home loan is a long-term commitment and you need to make sure that you have the means to repay it on time. For your home loan to be approved, you need to be employed with your current employer for a minimum of 3 years. This will not only prove your commitment to important matters but will also imply that you can repay the loan.
4. Previous Loan Rejections
If you have been rejected a loan application in the past, it would have become a part of your credit record. Instead of applying to a variety of banks to increase your chances of approval, make sure that you know the result from one bank before applying to another. This will be of advantage to you in another way - you will be able to spot your mistakes and correct them when you apply for the second time. This way, you will never repeat the same errors.
5. Address Related Issues
Note that there is a chance that the address of an applicant can be blacklisted too. This is usually never the fault of the applicant himself. If the house that you are living in has had an owner that is on the bank defaulters list then you will have to bear all the consequences going forward.
6. Failure to File Income Tax
Filing your income tax year after year is a sign of being a responsible citizen. It tells the banks if you are serious about upholding your responsibilities and if you will be able to repay the home loan on time. Lenders will make sure that they check your tax filing records for at least the last 3 years before approving your application.
7. Builders Credibility
If you have finalized a housing project developed by a reputed builder, you should not worry about its credibility. However, if the builder has been a part of property-related disputes in the past, it will create problems for you in being granted a home loan. Whether it is project delays or defaults in payments, banks hesitated in providing loans to a buyer who trusts builders that have been part of controversies or inefficiencies in the past.
8. Over Valued Property
Banks have professional technical experts who are required to go and inspect the property that you would like to take a home loan for. They look at factors like location, purchase price, locality, physical condition, and much more. If it comes to notice that the sale of the said property is taking place at a purchase price higher than its initial worth in the market, the bank will automatically reject your loan application. One main reason for this is that it is the duty of financial institutions to make sure that their loan to value ratio is maintained and no one is granted a loan for a property that they are buying at a much higher price than its value in the real estate market.
9. Unpaid Dues
As a responsible borrower, you need to make sure that punctuality is your strength. You need to be punctual with payments and remember to not miss any deadlines. You can do this by being aware of your due repayments and bills.
10. Homebuyers Age
Think about this - will a bank be keener to provide a loan to someone who is young and just starting their career, or to someone close to retirement? Let us answer this for you. Banks would always prefer young borrowers because they will have more than enough time to repay their loans. People who are now nearing retirement are unlikely to be able to repay the loan in a decided time. This is for a variety of reasons. Firstly, their chances of career growth are slim to none. Moreover, home loans are usually in huge amounts and people retiring soon will have a limited working life left ahead of them. While it is slightly disappointing, banks would never prefer to go through so much hassle with a home loan applicant if they have other probable applicants right at their disposal.
11. Incomplete Documentation
This is a must for approval. Here is where your research comes into the picture and you need to make you are well aware of all documents that you are supposed to attach with your application. Also make sure that you do not provide any false or inaccurate information about your income, previous loans, job history, and financial status. If you are well informed, you already know that banks run verifications and background checks on all applicants even if they have submitted all the required documentation.
12. Serving as Guarantor to a Defaulter
Do not serve as a guarantor for anyone unless you are sure that they are stable in their job and can repay their loans. No matter how close you are to this individual, do not let emotions get in the way of such decisions. Did you know that if the person fails to repay their loans, it will be your responsibility to repay the loan on his/her behalf?
13. Unsuitable Property as Security
Banks are very particular about the types of housing properties that you decide to keep as securities for your home loan. There are a few things that you need to keep in mind before you choose the property that you want to keep as security. Consider all this before you make your final decision -
The property should be too old
All the documents required by banks to verify the property should be easily available
The property should be constructed by a trusted and renowned builder
The layout and title of the property should be undisputed
The property should be easy to sell, in demand, and preferred by lenders
If you want to stand out, you can also find out the resale value of this property and choose which has a good and high reselling value. This will serve as an asset to banks.
14. Repaying Capacity
This is one of the most common reasons for banks rejecting home loan applications. Even if you have provided all the information from your side, they will still run a thorough background check on you and your credit history. If your requested loan amount is more than your repayment capacity, you will be rejected without a second thought.
15. Signature Mismatch
This is one of the most careless mistakes that you can commit as a home loan applicant! You do not want to go through the whole process again just because your sign is not identical to every page of the application. For those of you who do not know, you are expected to sign on quite a few pages of the application form. On each page, your signature should be the same and there should be no discrepancies whatsoever.
Low Loan to Income Ratio
It is your duty to inform the bank about any other loans that you have recently taken or that you may have taken in the past. Remember that the total number of loans taken by you should not exceed 50% of your total salary. This includes the home loan and any other loans that you may have taken. A solution to this is to apply as a joint applicant. This means that you can include your family's income to increase your loan to income ratio, hence getting approved.
By now you must have realized that there are ample reasons for the banks to reject your home loan. After all, it is their sole responsibility to make sure that they do not approve a loan to a homebuyer they do not deem appropriate. For more clarity, we have summed up the entire blog in the form of a few lessons that you can learn from all these reasons for rejection. Knowing these will assist you in doing better.
Check your credit score for errors
Double-check your application no matter how much extra time it takes
Avoid frequent job change
Reach out to Clicbrics wherever you feel stuck
Make sure there are no disputes or issues with your chosen property
Improve your credit score
Research on house loan eligibility criteria of different banks
It is okay to put in extra effort for the sake of finally getting to buy your dream property
We have fulfilled our end of the deal and informed you about all possible reasons there are for banks to not approve a home loan application. Now, the ball is in your court. Fulfill your end of the deal and make sure that you achieve your goal of purchasing your dream home in the very first attempt!
Also read: Common Mistakes Home Loan Applicants Should Avoid