Know the reasons for which your home loan can be rejected by a lender or a bank
One of life’s most significant financial decisions to make is whether or not to buy a property. With the escalating real-estate rates, most people aspiring to purchase homes have to depend on banks and housing finance companies to provide the necessary finance to purchase a property. However, since a home loan is a high-value, long-tenure loan, the chances of the loan being rejected can increase manifolds. Unless the lender is convinced that you can repay it, your loan will not be sanctioned. Here are eight of the most common reasons why lenders reject home loan applications
- The borrower doesn’t fit into the lender’s preferred age criteria
Lenders need applicants to have a minimum of 3 years of work experience and stability in employment, which is why the minimum age for home loans is set at 24 years. On the other hand, borrowers edging towards retirement or those who’ve retired may have reduced sources of income which can prove to be a hindrance in repaying the loan, prompting lenders to reject the loan application.
- The applicant cannot show stable employment
Home loans typically last for 2 to 3 decades. As such, lenders need to ensure that the applicant can take on this long-term debt and repay it on time, without defaulting. Applicants who change jobs frequently or stay unemployed for long durations are deemed risky. The lender cannot judge whether the applicant will hold on to the job until the loan is repaid, which can be a cause of concern, ultimately resulting in a rejected loan application.
- The applicant’s loan to income ratio is high
When you take on any loan, you have to inform the lender about the other loans you are repaying, while taking on a new one. This helps lenders calculate your loan to income ratio, i.e. the percentage of your income dedicated towards loan repayment. If you are spending 60% of your income on repaying loans, and taking on another one, the lender worries if you will indeed be able to repay it. A high loan to income ratio means that you won’t have enough money to finance your other mandatory expenses. In such a case the lender may reject your loan.
- You don’t have adequate credit scores
Lenders ask you to provide a report of your credit repayment behaviour, also known as your credit score. The credit report affords your lender a glimpse into the number of loans taken and repaid, including credit card debt. You need a credit score of 750 out of 900 to be eligible for the loan. If your credit score is less than 700 points, the lender may reject your loan application outright.
- The applicant has never filed IT returns
When you apply for a home loan, you have to submit proof of your Income tax returns of the last three years. Whether or not your employer has provided you with Form-16; filing tax returns is mandatory to avail home loans. If you cannot provide proof of having filed ITR for three consecutive years, your loan application will not be accepted.
- If the applicant fails to submit all the documents required by the lender
Accurate and precise documentation is a prerequisite while applying for home loans. You must ensure you’ve submitted every document the lender has asked for in the loan application form. Failure to furnish the necessary documents can automatically disqualify you from the running.
- The lender does not approve the property you intend to buy
In the process of passing the home loan, lenders run several verifications and authentications. They also verify the property you intend to purchase on loan. Local bodies do this verification, and if they find any faults or discrepancies in the property, they communicate the same to the lender. The lender then rejects the loan for that specific property but may approve your loan if you choose another property.
- The lender disapproves of the builder
While the lender may approve the property, there is a good chance that they may disapprove the builder. The builder may not have a good market reputation or may have been involved in a fraud, causing the lender to disapprove them. It is better to ask the lender for the approved list of builders to avoid any disappointment in the later stages of the loan.Final word: Since a home loan is a high-value loan, lenders have to assess several factors before approving it. These include the borrower’s repayment capacity as well as the property and builder. If lenders ignore even one aspect of the loan, it could result in enormous losses for them. Lenders must mitigate their risks at the onset and may have to resort to rejecting loan applications under various circumstances, as mentioned above.
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