With the increasing aspirations of the young generation, along with astronomical prices of houses, most home buyers today, seek to avail of home loans to fund their property purchase. However, there are various factors, which may cause your home loan application to be rejected or approved with a lower eligibility amount and/or delays.
Bad credit history
A major reason, for home loan applications to be rejected by the lender, is bad credit history/score. This may have happened due to sheer ignorance/negligence, as the credit information bureaus like CIBIL are of recent origin and there was not much awareness among the public, about the importance of having a good credit history. Your credit history may be adversely affected, due to various reasons like default or delay in payment of EMIs of earlier loans or in the payment of your credit card dues.
Your credit history is also adversely affected, even if you have made the settlement with the bank and the account has been closed, in case the lender had to waive off part of the amount due. While persistent delays in the payment of your EMI affects your credit score adversely, isolated instances of delay do not. If the application is rejected due to low credit score or bad credit history, your chances of getting a home loan will be negligible, unless the lender knows you and understands the circumstances in which the delay or default happened.
Age of the borrower and the property and physical condition of the property
Lenders are primarily interested in ensuring that their loans are properly serviced. This depends on continuous flow of income. So, if you only have a few years to retirement, the lender may not grant you a home loan, or at the most, give you a home loan with a short tenure and resultant lower eligibility.
People are generally under the impression that banks do not grant home loans for buying properties in old buildings, which is not correct. However, if the residual life of the property, as evaluated by the valuer appointed by the bank, is only a few years or if the physical condition of the property is poor, the lender would not be willing to take the risk of granting the home loan.
Regular flow of income, nature of income and filing of income tax returns
If you are engaged in a profession or business, where the flow of income is volatile and unpredictable, the lender may not consider your home loan favourably. Likewise, if the income shown is from sources like tuition, cooking and catering, etc., the lender may not be confident about the genuineness of the income and hence, may not be comfortable with granting the home loan. However, if the income and the saving is substantiated by concrete investments, such as those in shares, mutual funds or bank fixed deposits, the same may be considered by the lender.
The lender may also reject your home loan application altogether or grant you a lower amount of loan, if the salary received in cash is not substantiated with other evidence like provident fund deductions and TDS deductions. If you have filed your income tax returns for more than one year at a time or within a short timeframe, the lender may view it with suspicion and presume that the returns have been filed purely for the purpose of availing the home loan, unless there are advance tax payments or tax deductions at source, which prove the genuineness of the income.
Your home loan application may also be rejected, or the eligible amount may reduce, if you already have loans for which you are paying the EMIs. The lender will know about your existing loans, from your CIBIL report or the bank statements that you submit to the lender.
(The author is a tax and investment expert, with 35 years’ experience)