Taking a home loan is one of the most crucial steps in building or buying a new home. Applying for a home loan involves a lot of research, decision making and keeping required documents ready. You not only need to save your hard-earned money for the down-payment but also have to compare the different lenders to get the loan at lowest interest rates. Being prepared not just saves time but efforts as well. A good credit score, less financial liabilities, higher income and no default record can get your loan approved.
But, there are times when you are unaware of the many formalities and paperwork involved during home loan application and due to some unexpected reasons a home loan application can be rejected.
Here are the top 10 reasons for which your home loan can be rejected by a lender or a bank:-
- Unpaid dues:
One of the most important things to consider for the approval of your home loan is your credit record or history. Accumulating credit card dues, late EMI payments, huge pending debts etc. all can be major reasons for loan rejection. The only option to overcome this condition is to be punctual with payments and never miss any deadlines and always keep a check on your credit record by being aware of your bills and repayment dues.
- Existing loans/debts:
If you apply for a home loan, when you are already debt-ridden with previous loans, the bank has the right to reject your loan on the grounds of your liabilities being higher than your income. Your real income will be calculated by subtracting all your ongoing credit repayments from your income. If according to the lender’s analysis, your repayment capacity seems inadequate, the bank or lender may refuse to offer you a home loan.
- Residential address on Defaulter List:
If you have moved to or share an address which belongs to someone who has been a defaulter for either loan repayment or credit card dues and hence been reported to CIBIL, banks probably will have the address stored in their defaulters’ database. In such a case, the possibility of your home loan being approved decreases. However, even if a particular address is not in the defaulters’ list, then there is a possibility that the very locality is in the negative zone. Your loan application may get rejected in such a case too.
- Loan guarantor to a defaulter:
Being a loan guarantor to someone can sometimes be risky. Unless you are sure of the borrower’s repayment capacity, do not agree to be a guarantor, reason being if the borrower fails to repay, you will be responsible to repay the loan on his or her behalf and if you have been unable to repay the loan, you will be reported to CIBIL and this will reflect in your credit report.
- Age of the applicant:
If you are nearing retirement age, then banks or HFCs would be hesitant in giving loans as your repayment capacity will start to reduce in a few years. A few may be ready to offer short-term loans up to the date of retirement. But, short-term loans for huge amounts would lead to very high EMI, making it a heavy burden on the borrower. Hence, they are likely to reject home loan applications in this case.
- Unstable Employment:
Changing too many jobs also reflects poorly on the home loan application. Banks place a lot of importance on job stability and certain banks even insist that an applicant needs to be employed with a particular concern for three years or more to be eligible for a home loan. If sometimes, the applicant’s company, although reputed seems unstable, the bank reserves its right to reject the loan.
- Loan application has been rejected before:
Every bank has records of the entire rejected loan applications in their database or can obtain a history of loan application inquiries from CIBIL. When the applicant applies to a bank, the rejection will show up in the credit profile check and this would probably affect the creditworthiness of the applicant. So, it is highly advisable that one should not keep on applying for loans without any reason.
- Credit history issues:
Surprisingly, even people with a credit score of 700 and above (out of 900) are sometimes denied credit because of past mistakes. For example, there may be some EMIs or charges missed by them which they have forgotten about, or your loans go past due dates. But the same can have a negative impact on one’s credit history and this alone can lead to the rejection of a home loan. It’s very important, therefore, that customers regularly check their credit scores and fix issues, if any, around their poor credit history immediately.
- Suitable property as security:
Not all types of residential properties are suitable securities for home loan. Generally, lenders prefer properties that are easy to sell, are in demand, simple to value, and have stable prices and good resale value. Ensure that while choosing your property, do not go for something too old. It is also advisable that the property is constructed by a reputed and trusted builder to get your loan approved. Any issue with the layout or title of the property could also result in rejection of your home loan application.
- Irregular filing of Income-Tax Return:
It is important to file your income tax every financial year, whether or not you receive your Form – 16 from your employer. Lenders and banks check for a clear track record of filing income tax returns of the last two years, before approving a home loan.
Apart from these reasons, there are some unexpected reasons for the rejection of home loan application:-
- Non-availability on landline/phone:
When you fill in your landline number in the home loan application form, the bank authorities will call you on the same for verification purposes. In case, the bank calls you when you were not available due to any reason, the bank simply considers it to be a case of ‘no response’. Therefore, it is very important you also provide your mobile number in the application form to get hassle-free approval.
- Unpaid telephone bills:
Sometimes even unpaid telephone bills can lead to the rejection of your home loan application. Banks and lenders do not look highly upon late payments or unpaid bills. This only serves as another reason for rejecting your application.
- No NOC from the previous lender:
It is important that you get a NOC (No Objection Certificate) on any previously closed loan. Banks or lenders reject your home loan application if you do not provide with an NOC of your old loan that has been closed.
- Mismatched signatures:
Home loan application is very lengthy, and you are supposed to provide your signature in many places, there are chances that the signature may vary a bit. However, for the smooth approval of the home loan, the signatures on the home loan application form should not only match the document copies, it should also match the documents of the registered bank.
- Property with Minor Rights:
If the property you are taking a loan for, has minor rights and if the seller has not disclosed the information about a minor having rights on the property, your home loan application has a high probability of getting rejected.
- Unapproved builder:
In some circumstances, the bank or HFCs might not want to loan for a project or a home that is being built either by an unknown developer or one that does not have a good reputation which may, in turn, get your loan rejected.
- Not having enough work experience:
Lender or banks prefer applicants with a stable job where they have minimum three years of work experience with an attached professional qualification. As the bank determines the borrower’s stability as well as repayment capacity by assessing the number of years of employment. So, freshers are not a preferred option when it comes to approving home loans by banks.
- Career change from salaried to self-employed:
It is not very easy to approve your home loan if you have just started up with a low capital and no secure future. In these cases, you must ensure the bank of your growth and stability as a business by providing some testimony that can help you bag the loan. It is also very difficult to get your home loan approved if your employer is a newly established start-up.
It is clear that there are many common as well as unexpected reasons for the rejection of a home loan application, and one can’t be 100% sure of getting a loan even if one is earning a handsome income.