Sometimes the loan application does not even reach the credit officer. They are declined at the application stage. Here are some reasons.
Home loan application being rejected is not an uncommon topic to write about. There could be many reasons like poor credit score, not having sufficient income, property not approved, among the main reasons. But there are many roadblock even before your loan application gets considered for preliminary viewing by the credit appraiser. Lenders have made provisions for important input subtly in the application form and an experienced credit officer will not even consider forwarding it, if the following norms are not met.
1. Educational qualification: Most lenders take the education background seriously. They interpret that the qualification will ensure that the applicant will not likely to be jobless. Without getting deeper into how far that is practical, let me mention that under-graduates are not a preferred category.
2. Minimum work experience: New employees do not wait even for a month after getting their first job to apply for a credit card. That generally is followed by taking a personal loan and then a car loan. Some enthusiasts even start exploring home loan as an option that early. Lenders do not lend without applicant having a minimum three years of work-experience; some budge at two years with a professional qualification attached.
3. Too many dependents: Parents, in-laws, three children, spouse home-maker...sounds a happy joint family? But this number does not excite credit managers. More than three dependents are worth only a frown and considered 'risk'.
4. Current employer is an unestablished start up and not well-funded: Yes, if your paymaster is not financially strong enough, the lender might ask you to get the last three years' financials of your employer and being unsatisfied with the profit your company is making or not being in the business long enough can ruin your bet on the block of buying a home.
5. In-between jobs and holding multiple offer letters: Holding multiple offer letters are personally gratifying, but not having much value in the view of a credit appraiser. Unless you join one of those companies and get a month's paycheck, you are considered 'jobless'.
6. Career change from salaried to self-employed: This is very common. High-paying executives drawing Rs 1 crore a year is going to be denied any loan till he establishes his business for minimum three years with at least two years of ascending profit lately.
7. Co-owner relationship not as per acceptable grid: Do not get emotionally carried away and buy properties jointly with brother, in-laws, cousins, friends, colleagues. They are not acceptable as co-borrowers with the lending institution.
8. Too many co-owners: Can you guess how many maximum number of co-borrowers are allowed in a home loan? With most lenders it is 3-4 and with one or two at best 8 with lots of deviations, and with a very serious cause of having so many co-owners while buying a property. So, if you are three brothers and one sister, all married and want a happy family home owned jointly with parents and approach a lender, then all 10 of you will feel guilty of being the cause of not getting the loan. Removing someone or multiple persons after that rejection will leave a bad taste. So, better not explore.
9. Property valuation is lesser than purchase cost: This can be purely incidental, but the credit department will always look at it as 'inflating the value to get more loan'. All properties have a fair market value and an exorbitant hike from that rate will lead into getting your application rejected before it is perused.
10. Processing fee cheque getting bounced: This is an error no applicant should make. The application fee for a home loan is pretty low, generally not more than 10,000/-+service tax and if even that cheque gets bounced, the bank might consider this as your being extremely casual about being credit-worthy and decline to process your application further. No chance remains if it is due to 'insufficient funds', but 'signature mismatch' is considered as bad. After all, they are going to lend you in lakhs, if not in crores. Lenders are completely justified if you do not even have a balance of 10,000/- in the account, or your signature does not match, which can lead into various trouble for the lender in future.
11. Shortage of self-contribution amount: Lender may ask you to show your other investment details which you will or may liquidate to pay the self-contribution amount, if not paid already. Not being able to show that in form of an asset-statement or not having sufficient balance in the bank account may cause decline in the application. 'Will borrow later from friend or family' isn't acceptable.
12. Too old property: Are you trying to buy a property which in the lender's view may not stand tall for the next 40 years? You might think, but why 40, when I am taking the loan for only 15 or 20 years? But, the policy of the lender says that 20 additional years of longevity is a must. So, check that out before you zero-in on that property.
13. Guarantor to someone else's loan blocking your eligibility: Home loan application form may seek input of your being guarantor to another loan and the volume of that loan amount. Now, you have applied for Rs 40 lakh loan which is your maximum eligibility and have already been a guarantor for a friend's Rs 40 lakh loan, your application will not be perused any further.
Hope the above input prepares you before you think of borrowing for buying a home and does not get your application rejected only by the content of it, even before any persuasion.