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What steps should I take if my Home Loan application gets rejected?

Having to hear that your home loan has been rejected is indeed a difficult situation to be in. After all, no one likes to see their dreams of owning their own home smashed to bits! But don’t despair or panic, for it is not the end of the road for you. You can still resurrect yourself and reapply for another loan. Here are some tips you can follow if you find that your loan has been rejected:

  • Look for a smaller lender: If a reputed and sizeable lender rejects your loan in the first place, you can consider a smaller lender that tends to show more flexibility and tolerance. However, you should bear in mind that the verification process will not be much different and you will still have to fix your credit issues if that is the cause of your loan rejection in the first place.
  • Fix your debt to income ratio: Lenders shy away from giving loans to borrowers who have a high debt to income ratio (DTI). This is a ratio that is used to determine the repayment capabilities of the borrower. DTI is arrived at by dividing the total amount of debt you have to pay in a month by your net monthly income. If your DTI is more than 35% your lender may reject your loan application. Work on bringing your DTI ratio below 35% by repaying your existing debts.
  • Fix your Cibil credit score: One of the major reasons why a home loan application gets rejected is because the borrower has a poor Cibil score. This means you may have unpaid dues on loans or a high balances on your credit cards. In order to fix your credit score, you need to pay off these dues. It may take you a few months to do so, but cutting down on some of your expenses and paying off your dues as soon as possible will help you fix your credit score. One way or the other, you have to find a way to close your unsettled dues.
  • Contact the lender: If your prospective lender rejects your home loan application, first things first, reach out to your loan officer and find out why your loan was rejected. This will give you an idea of what went wrong and give you a chance to fix it.
  • Re- examine your credit report: If you have a credit score that is not too bad and your loan application gets rejected, you must pull out your credit report and see if there is anything amiss, such as a wrong transaction has been reported, or a debt that you have already paid off is not reflecting on your report yet. Ideally, you should have done this way before applying for a loan, but if you did not, now is the time to do so and take the necessary action to rectify your report.
  • Re-apply with a co-applicant with a good credit score: Ideally, it should be your spouse that you should be considering as a co-applicant. If your spouse has a credit score of more than 750 and has a stable job, your chances of qualifying for the home loan becomes higher. You must definitely consider taking a joint loan, in case your loan application gets rejected the first time around when you apply as a single borrower.
  • Just wait it out: If you have too many credit problems ailing your financial health, just keep your plans of buying a new home aside till such time as you sort out all your issues and can pay back all your existing loans. It may mean losing the opportunity to own a property you might have set your eyes on, but it’s worth the wait to re-apply when your finances back in order.

It is not unusual for lenders to reject loan applications that they do not find satisfactory. Anecdotal evidence shows that one in every five application is rejected for some reason or the other. If you have gotten rejected, do not get disappointed. Instead, work towards fixing the problem and re-apply only when you think everything has been put back in order.