20 Reasons Why Banks May Reject Your Home Loan
A home loan is a vital step in buying a home. Applying for a home loan includes research, decision-making, and preparing the required documents. Being fully prepared saves time and effort. Sometimes, you are unaware of the many formalities and paperwork involved during a home loan application. Besides being loan-ready, knowing why your home loan application may get rejected is essential. Below are some reasons a lender or a bank can reject your home loan application.
Unpaid Dues
When a borrower takes a home loan, credit history and record are the foremost things involved in approving the same. The credit history check involves timely payment of dues and EMIs, etc. You can always check on your credit record by being aware of your bills and repayment dues.
Other Dues
If there is another debt, your actual income is calculated by removing the credit repayments from your income. If your repayment capacity seems inadequate, the bank may refuse to offer you a home loan.
Low Credit Score
Your home loan application can get rejected because of a low credit score. A credit (CIBIL) score represents your repayment history and creditworthiness. A CIBIL of 750 or above is reasonable, as lenders can trust you with future repayments. Therefore, before offering you a home loan, any bank will check your credit score, which is available with various credit bureaus like CIBIL. Your CIBIL may get affected owing to delay or default in loan or EMI.
Error in a CIBIL report
It may happen that although you have an excellent credit history due to a human error, there is a default in your credit report that is bringing down your CIBIL. Hence, it is advisable to keep a regular check on your credit score and get the errors rectified.
Repayment Ability
When you apply for a home loan in a bank, the bank's representative does a background check on your income to know if you can pay the loan amount you requested. However, if you have applied for an amount that is beyond your repayment ability, there can be a chance that your application gets rejected.
Work nature
People from the salaried class are more likely to get approval on their home loans than self-employed people, especially the owners of small or new businesses. As lenders see a sense of security and stable income when it comes to salaried employees. However, that stability goes missing for new business owners, as lenders are unsure about their financial status.
Age
Regarding your age, there are two circumstances when your application can get rejected. You are either a fresher, or your age is close to retirement when applying for the loan. A newer usually has a lower income, and any individual close to retirement may be unable to pay the loan in the long run.
Lower property valuation
Typically, banks offer home loans up to 90% of the property's price. Depending on the market price, banks evaluate the property by considering many factors, such as construction quality, region, age, and condition. Therefore, even if you are eligible to get a higher loan amount based on your income, the bank may reject you if they come to know that your property has a low valuation.
Unpaid Dues
When a borrower takes a home loan, credit history and record are the foremost things involved in approving the same. The credit history check involves timely payment of dues and EMIs, etc. You can always check on your credit record by being aware of your bills and repayment dues.
Unstable Employment
People who frequently change their jobs within six months to 8 months are not considered reliable by most lenders. On the other hand, stable employees working for an organization for at least one year are considered ideal by the banks as their stability ensures timely repayment.
Poor CIBIL of the Co-Applicant
Today, most people apply for a home loan with a co-applicant to reduce the EMI burden. Yes, a joint home loan has advantages, but the bank may reject your application if your co-applicant's CIBIL is poor.
Delay in guaranteed repayments
You may be paying the EMIs on time. But if you have guaranteed any loan for someone who is not repaying it on time, it will show in your CIBIL and may also impact your credit score negatively.
Existing Liabilities
You may also face rejection if your Debt-To-Income Ratio is more than 30%. Hence, if you are already paying other EMIs and the bank feels that paying the EMIs for a home loan would utilize a considerable amount of your salary and you may also default, they may hesitate to offer you a home loan. Again, a bank will quickly learn about the other EMIs you are paying via your CIBIL report. Hence it becomes essential to have a good credit score.
Incomplete Documentation
Submitting proper and authentic documents is essential for any loan. By offering you a loan, a bank takes the risk of lending you a considerable amount for a long tenure, so it becomes essential for them to check all the documents thoroughly. If you don't submit all the documents, present false information, or if your signatures don't match, banks will not take your application further.
Absence of 'No Objection Certificate
Suppose the seller of the property you are interested in purchasing has taken a home loan earlier. The bank may reject your home loan application if he cannot provide you with the no objection certificate (NOC). In that case, he should have received a home loan NOC, also called the 'No Dues Certificate from the lender, after repaying the entire loan amount.
Frequent job switch
Banks take note that you have been changing jobs quite frequently. It is based on the assumption that you lack the commitment and stability which acts as a base for serving a long-term liability.
Type of job
Banks also do not offer loans to salaried employees who work in specific sectors because of the risks involved. For example, people working with the police departments do not find banks as forthcoming to give them loans. The same happens with lawyers and journalists.
Address-related issues
While preparing their defaulter's list, banks may blocklist the applicant and his address. This means you may have to suffer the repercussions of being a property renter whose owner may be on the defaulters' list of the bank.
Previous rejections
A bank would know your loan application has been rejected by another lender as soon as it accesses your credit report. Besides the fact that you have suffered the rejection, the CIBIL report will also mention the reasons for your loan rejection.
Properties in 'red zones.'
Banks have a list of localities, segmented as the 'red zones,' where they do not finance home purchases, as they consider these zones as risky propositions.
Encumbrances on the property
Banks will never finance a property caught in any legal or financial battle. Even in areas that do not fall under the list of red zones, a bank will not finance a property purchase if there are any questions over the title documents. During its legal assessment, the bank will establish if the seller is legally authorized to carry out the transaction while tracking the integrity of the property documents.
Sometimes providing additional security towards your home loan application, like fixed deposits, collateral securities, a guarantor, or insurance policies, can help you get the home loan you are looking for. The list is massive and getting your home loan approved is no joke. Therefore, you must be sure that your records are clear.
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