It is important to do your homework well, before you apply for a home loan. There are many reasons due to which a loan application can be rejected by a bank. Also, you may not get the right deal from the bank, if you are not prepared in advance.
According to Babu Sivaprakasam, partner – head banking & finance, real estate, Economic Laws Practice, “A home loan applicant must do some homework like:
- Collecting and collating all the documents and keeping the originals and copies ready.
- Knowing the eligible loan amount in advance.
- The amount of funds that he can contribute towards margin money – typically, a lender will provide a home loan to the extent of 80 per cent of the flat’s cost.
- After payment of EMIs, whether the balance amount available, is sufficient to meet other monthly expenses according to one’s lifestyle. For an under-construction property, this may be crucial, as an applicant may also have to pay rent during that period.
- Maintain a good credit track record.
One may have all the necessary financial documents and a healthy CIBIL score, but the home loan application may still be rejected, if the home/project they have identified is not approved by the lender, or if the project has certain title or legal issues, or it is not registered under RERA, etc.”
Therefore, an applicant should check whether the project is registered under RERA, prior to making any booking payment. Home loan seekers must also ensure that all their other loan payments, including credit card payments, are made on time to maintain a healthy credit score. Filing of income tax returns correctly and on time, will also help a lot.
Common reasons for rejection of home loan applications
Insufficient income to support a house purchase, is one of the main reasons for which home loan applications are rejected by banks.
“The annual net income after taxes, minus expenses towards other loans, EMIs and other recurring expenses, is the surplus available to a buyer. Home finance companies usually take 50-65 per cent of this surplus, as available for servicing the home loan and may sanction up to 10 times of such amount as the home loan. This amount may be short of the desired loan amount, in which case one has to look for a lower value apartment or bring in more of their own capital, to avail of the loan. The buyer may also add another family member (husband/ wife/ father/ mother/ sister/ children, etc.) as guarantors and pledge their surplus income, to meet the loan requirement. One can also seek assistance and guarantees, if possible, from one’s employer,” suggests Amit Goenka, MD and CEO at Nisus Finance Services Co Private Ltd (NiFCO).
In many cases, the developer may also help, by proving such guarantees, or by offering subvention schemes or by absorbing certain costs, which can help towards eligibility. Experts suggest that loan seekers should also check online portals, which can tell you the loan eligibility and rates for home loans, on the basis your income.
Homework, before you apply for a loan