Applying for a home loan is one of the most important processes in the construction or purchase of a new home. Applying for a home loan takes extensive study, decision-making, and having all the essential paperwork on hand. Being prepared not only saves time, but it also saves work.
When one applies for a house loan, the bank has the right to accept or reject the application. If the loan is denied,banks may or may not inform the specific reason for rejection. While one cannot demand answers or explanations from them, one should be aware of instances in which your application is denied.
- LOW CREDIT SCORE
Lenders today ask for a credit report even before one applies for a loan, regardless of the type of loan one intends to take. Lenders might use the credit score to assess credit history and worthiness. For the loan to be evaluated, one must have an excellent credit score of at least 750 points. If anyone fails to pay credit card bills or existing loan EMIs on time, their credit scores will suffer. These characteristics may indicate to the lender that the credit repayment behaviour is subpar.
- UNSTABLE EMPLOYMENT
Lenders do not prefer applicants who regularly change employment to be trustworthy. Stable work, on the other hand, is preferable to lenders since it ensures timely loan payback. Lenders prefer applicants with at least one year of experience in their current organisation to be eligible for a house loan.
- LOW LOAN TO INCOME RATIO
Another prevalent reason for house loan denial is this. One must inform the lender of any other loans they have taken, such as a car loan, a motorcycle loan, a personal loan, and so on. This aids the lender in determining the loan-to-income ratio. Borrowing more than 50% of one’s monthly income in total loans is not recommended. If the loan-to-income ratio is greater than half of your monthly salary, lenders are likely to reject your application. One can apply for a home loan as a joint loan and have it accepted by including family income.
- FAILURE TO FILE INCOME TAX
Filing income tax returns year after year is critical since this could be a major reason for home loan refusal. Even if the employer does not offer Form 16, one must file their income tax. Before approving a house loan, lenders will review tax filing data for the previous three years. This is a common misunderstanding.
- INCOMPLETE DOCUMENTATION
Accurate documentation is required as part of the approval process; otherwise, the home loan may be declined. One must submit all of the documents listed on the application form. If one fails to do so, the home loan application will be refused.
- NOT FALLING INTO THE AGE LIMIT
Home loan eligibility is directly related to the loan tenor. If one is younger, one has a longer time to repay the loan. So one can have a loan with a longer tenor and lower EMI. However, if the loan taker is older and due for retirement soon, he will get the loan for a much shorter term as the loan needs to close before the retirement.
- LIVING IN AN ADDRESS WHICH IS PRESENT IN THE DEFAULTER LIST
- FAILURE TO OBTAIN “NO DUES CERTIFICATE”, FROM PREVIOUS LENDERS
- LOW VALUATION OF PROPERTY
Banks often lend up to 85% of the property’s worth. Banks conduct property valuations regardless of market price, taking numerous criteria into account such as the age of the structure, the state and quality of construction, the location of the property, and so on.
- MULTIPLE LOAN REJECTIONS
An applicant must verify their credit score at one bank before applying to another. Such occurrences are recorded on an applicant’s credit report. This allows the applicant to remedy their mistakes if they make a similar mistake next time. The Credit Bureau CIBIL also records loan application rejections.
- DOES NOT FIT THE BANK’S POLICY
The bank’s internal policy may identify flaws in the field of construction or credit profiles that are negative. Banks may refuse to fund structures that are 20 years old or older. Before jumping banks to get a loan, make sure you examine all areas and consider the bank’s perspective.
In a nutshell, the approval of your home loan application is in your hands. Based on who you are and what documents you give, the lender can assess your eligibility for a home loan.
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