Getting a home loan approval is crucial for many aspiring homeowners. Banks might reject loan applications for various reasons. Understanding these reasons helps you prepare better for your loan application. It’s important to know the key factors that banks consider to increase your chances of approval. This article will highlight the top reasons why banks might reject your home loan application, helping you navigate the process more effectively.
Low credit score
Your credit score shows how reliable you are with credit money and whether you can be trusted to repay loans. If your score is low, banks might worry that you won’t pay back what you owe on a home loan. This could make it harder for you to get approved. In India, a credit score of 750 or higher is usually seen as good. It’s important to check your credit score before applying for a loan.
Age of the borrower
One of the main reasons home loan applications get turned down is the borrower’s age at the time they apply. If someone has just started working or is nearing retirement age when applying for a home loan, lenders may hesitate to approve the loan. A new employee often has a lower income, which makes it harder to predict their ability to repay the loan. Similarly, someone nearing retirement may not have enough income sources left to comfortably pay off the loan. These factors can make lenders cautious about approving the loan application.
Mistakes in credit report
Even if you have a good credit history, mistakes can sometimes appear in your credit report. These errors could lead to your home loan application being denied. It’s important to check your credit report regularly and correct any inaccuracies promptly.
Incomplete or inaccurate documentation
Incomplete or incorrect documentation can cause problems when applying for a home loan. Banks verify your income, employment status, and assets, so it’s crucial to ensure all your paperwork is thorough and accurate. This helps avoid delays or the rejection of your loan application. Double-checking your documents before submission is essential to smooth out the process.
Not filing your income tax returns
Not filing your income tax returns annually is a critical reason why your home loan application could be rejected. Lenders review your tax filing history for at least three years to assess your eligibility. It’s essential to file your income tax returns each year, even if your employer hasn’t issued a Form-16. This ensures you meet the necessary requirements for loan approval.
Constantly switching jobs
Constantly switching jobs, while often done for career advancement or personal reasons, can raise concerns for lenders. They may view frequent job changes as a sign of instability, which could affect your ability to repay a loan.
Property lacks approval
Lenders typically check if the property you intend to buy with a loan is approved by local authorities. If the property lacks approval or doesn’t meet local guidelines, your loan application may be rejected. Additionally, lenders are cautious about financing older properties due to potential resale value concerns.
Past loan applications and rejections
When applying for a loan, banks review your credit report, which includes details of past loan applications and rejections. It’s important to be aware that previous rejections can impact your current application. Before applying again elsewhere, it’s wise to understand why your previous application was rejected. This allows you to address any issues and improve your chances of approval the next time you apply for a loan.
Property-related issues
Property-related issues can affect your chances of getting a loan. When the bank appraises the property, they assess its value. If the appraised value is lower than the purchase price, the bank might not lend you the full amount needed. Additionally, the property must meet guidelines set by authorities; if it doesn’t, your loan could be denied. The age of the property also matters—older properties may face more scrutiny from lenders, potentially making it harder to secure a house loan.
Unapproved builder
Before lenders approve a home loan, they ensure the property was built by a trustworthy and respected builder. If the builder isn’t approved by the lender, your loan application could be rejected. It’s important to select a property constructed by a developer approved by the Real Estate Regulatory Authority (RERA) to enhance your chances of loan approval. You might also consider properties pre-approved by the bank to improve your likelihood of securing a home loan.
Previous loan defaults
Another reason for home loan rejection is acting as a guarantor for someone who defaults on their loan. Before agreeing to guarantee someone else’s loan, it’s crucial to be cautious. This commitment can pose risks, especially if you also need a loan yourself. Make sure you are confident in the borrower’s ability to repay before becoming their guarantor. Avoid guaranteeing loans for individuals you are not familiar with. If the borrower fails to repay their loan, you could be held responsible for paying off the remaining amount, and it could negatively impact your own credit history.
FAQs
This ratio shows how much of your income goes towards existing debts. A high ratio suggests difficulty affording a home loan on top of current debts.
Ensure you have complete and accurate documentation for income, employment, and assets verification by the bank.
The bank might hesitate to lend the full amount if the appraised value falls below the purchase price of the property.
A larger down payment reduces the loan amount the bank needs to lend, making your application more attractive.
Including a co-applicant with a strong credit score and stable income can significantly strengthen your home loan application.
Gaps in employment, negative credit history like defaults or delinquencies, and property with legal issues can also be reasons for rejection.
Yes, consult with your chosen lender beforehand to confirm if the property meets their requirements for financing.
Double-check all your documentation for accuracy and completeness before submitting the application. What is a debt-to-income ratio, and how can it affect my application?
What kind of documents do I need to avoid delays or rejections?
What happens if the property value is lower than the purchase price?
How much of a down payment should I aim for to strengthen my application?
Should I consider a co-applicant to improve my chances of approval?
What are some additional factors that might lead to rejection?
Is there a way to find out if a particular property is eligible for a home loan before finalising the purchase?
What are some things I can do to avoid application errors?
| Got any questions or point of view on our article? We would love to hear from you. Write to our Editor-in-Chief Jhumur Ghosh at jhumur.ghosh1@housing.com |
