Here's why your home loan application may be rejected
Banks assess an applicant‘s potential to pay back a loan in terms of various parameters including his credit score, age, source of income.
Getting a home loan sanctioned plays a key role when it comes to acquiring your dream house. With the housing prices increasing constantly and people aspiring to own a property at early stages of life, bank have seen growing demand for loans. According to media reports, home loans constituted about 9% of India’s gross domestic product (GDP) with the home loan industry valued at Rs.10.6 lakh crore as of September 2015.
Although the increasing digitization of transactions have boosted the housing loan industry, banks have become increasingly particular about who they want to lend to, given the struggle with NPAs. Banks assess an applicant’s potential to pay back a loan in terms of various parameters including his credit score, age, source of income, etc. Here’s a list of reasons why your application for housing loan may be rejected:
• Poor credit score
Banks often refer to the credit score of an applicant before handing out a loan, as the scores tell a lot about the lending and repayment habits of an individual, thus indicating potential for repayment. Usually a credit score over 750 is considered healthy for lending. A credit score below 750 could lead to trouble getting a loan, or a loan at a low interest rate. If your application is rejected by a bank, repeated applications and rejections will only reduce your credit score further.
• Age and eligibility criteria
The eligibility criteria is different for different banks which include age, income, occupation, etc. and only if you qualify on the basis of these parameters, a home loan gets sanctioned. If a bank doesn’t find your income suitable enough for taking a loan or your age within the eligible limits, it can reject your application. For example, if you are seeking home loan after your retirement, the bank might refuse to sanction your loan considering the chances of defaulting due to the lack of a regular income.
• Stability of employment
Banks and lending institutions prioritize stability of employment and some even insist that the borrower be employed with the same company for at least two to three years to be considered eligible for home loan. Jobs with a certain degree of risk associated with them such as that of someone working on a warzone or a chemical factory are considered life threatening, thus reducing the chances of repayment of loan.
• Unapproved builder and/or project
Even if your personal details are in place, banks and financial institutions may refuse you a loan if the builder of the property is not in the good books of the bank. Banks go through all records of the builder and the property in question to ensure that there are no legal issues associated. If you are seeking loan for a property that doesn’t have a clear or marketable title or looking at a builder whose paperwork is not in order, you could face rejection.
• Seeking loan for an old building
Some banks may not fund properties that have aged considerably. However, the criteria for such rejections vary from bank to bank. In order to get a loan sanctioned for an older building you might have to pay a larger amount as down payment, and try and negotiate for a lower amount for loan from the bank.
• Buying a property from a defaulter
In case of resale properties, you might find it difficult in getting a loan sanctioned if the previous owner was a defaulter and the property has been blacklisted.
• Seeking loan for an overvalued property
Banks and lending institutions do the valuation of a property before handing out a loan as per their norms and if the price you have settled for is not found satisfactory, your loan may be rejected. Make sure your house is valued close to the market price.
The writer is CEO of BankBazaar