Top Reasons Why Your Home Loan Application May Get Rejected
Lenders take into consideration a host of factors while evaluating a person’s home loan eligibility. The chief amongst these factors is an applicant’s income, job stability, age, LTV ratio, property features, and already existent loan repayment obligations. Failure to satisfy the cut-off set by these lenders can get a housing loan application rejected. Here’s a guide that explains the top reasons why a home loan application may get rejected.
Lenders emphasize significantly on job stability while judging home loan eligibility. Some banks mandate that an applicant must be employed with a company for three years or even more to be eligible for a housing loan. Lenders are meticulous about the job stability of an applicant. Before sanctioning a home loan, they insist that a borrower has a stable job and be a permanent employee in their company. If these conditions are not satisfied, then lenders very easily reject an applicant’s home loan application.
Issues with Credit History
Many individuals do not keep a check on their credit score and are quite oblivious of the same. A survey conducted by a credit health improvement major, Credit Sudhaar, showed that over 85% of respondents are not even aware of credit bureaus. On the other hand, a whopping 92% are not aware of their credit scores were. It is, therefore, not very surprising that home loan rejection owing to a poor credit score is not a rare thing.
Surprisingly, even applicants with a score of 750 out of 900 and above are sometimes denied a home loan owing to their past mistakes. For instance, missed charges and old payments often compel lending companies to reject applications as they indicate a risky borrower. These small mistakes impact home loan eligibility. It is, therefore, essential that customers check credit scores regularly and fix issues, if any, especially concerning poor credit scores right away.
Lack of Income
If you quit or lost your job while your loan application process was underway, your lender will get to know about it during background verification. To lenders, a lost job equals to lost repaying capacity. Thus, they reject the home loan application, even if it had been passed during the initial stages.
If you are already into debt and still apply for a housing loan, your chosen lender may very well choose to reject your loan application. They can do so on the grounds of liabilities being greater than income. Your lender will check if your remaining income (after honouring existing commitments) would be adequate to meet home loan EMIs for the new home loan you have applied for. If you can show ample money, your application will get approved.
Imagine a situation where you are purchasing a home in the resale market. You, as the buyer and your seller, mutually decide on the price of the house and you choose to opt for a home loan for funding the purchase.
The bank or a housing finance enterprise, however, would sanction the home loan based on the valuation of the property as ascertained by it rather than the price that has been decided between the buyer and seller. If the amount of valuation is greater than the mutually-decided price of the property, then there may not be any issues. However, if the value of a property is lower, the lender may choose to sanction a lower than the desired housing loan amount, or may even completely reject the loan application.
Age of the Property
When you avail of a home loan, the property is typically held as collateral by the bank. If it is an old property, lenders may investigate to evaluate the chances of structural collapse. In many cases, the current condition of the property or the government norms surrounding an old property does not permit the loan approval.
Unapproved Builder or Property
Lenders always check if a property has received approval from the local authorities. If it fails to meet all the guidelines mandated by local authorities, a lender may refuse to sanction the housing loan. Similarly, builders are well scrutinized by financial lenders before they finance a project. If you opt for a property by a builder who does not rank very highly on your lender’s list, chances of getting a much-desired housing loan approval are slim, even if the property is approved.
Submitting all necessary documents required for home loan is a prerequisite. If the documents required for a home loan are missing, incomplete, or if you have not provided accurate information or your signatures do not match, it is quite likely that your home loan application will get rejected.
The Final Word
When you apply for a home loan, the lender has the right to reject or accept the same. Unfortunately, lenders may or may not always disclose the exact reason behind this rejection. Since you cannot demand explanations or answers from them, it is best to make yourselves aware of all the reasons which can get a home loan application rejected. If you want to check your home loan eligibility, use an online calculator. It will also give you a fair idea of your home loan eligibility, current home loan interest rate, and how much can you afford to repay each month.