Reasons for Home Loan Rejection

Posted by Sarita Yadav on June 22nd, 2022

Purchasing a home entails much more than simply choosing the correct property. This would be the most significant financial transaction of one's life. It's critical to set aside funds for the purchase with the least amount of impact on your other financial obligations in the future. Home Loans enable you to do exactly that by allowing you to leverage your future earnings to purchase your ideal home.

Rejection of a loan is the most aggravating experience, especially if you are in desperate need of one. Make sure you've covered all of your bases before going to the next bank to apply for one.

If you want to take out a home loan, here are 10 of the most common reasons for loan rejection that you should be aware of.

1. Age of the borrower at the time of the home loan application: When a borrower applies for a house loan, there are two main reasons why his application would be rejected: if he is newly hired or if he is nearing retirement age. Because they can't adequately assess the borrower's repayment potential, lenders are typically unwilling to issue loans for such people. While a newcomer normally has a lesser salary, someone approaching retirement may not be able to repay the loan as his sources of income dwindle.
2. Unstable employment: As previously said, property loans are often for quite lengthy periods of time. It requires a long-term commitment. Job changes on a regular basis, as well as spells of unemployment, might have an impact on your home loan eligibility. For your home loan to be accepted, you must have been employed at your present job for a minimum of three years. If you have been working for a longer period of time, the lender has the assurance that you will be able to repay the loan within the specified time frame.
3. Poor credit scores: Lenders today request your credit report even before you apply for a loan, regardless of the sort of loan you want. With the aid of your credit score, lenders may verify your credit history and worthiness. For your loan to be evaluated, you must have a credit score of at least 750 points. If you don't pay your credit card payments or your existing loan EMIs, your credit score will suffer. These characteristics may alert the lender to the fact that your credit repayment history is less than perfect.
4. Another typical cause for house loan denial is a low loan-to-income ratio. You must advise your lender of any other loans you have taken, such as a vehicle loan, a motorcycle loan, a personal loan, and so on. This aids the lender in determining your loan-to-income ratio. You should not borrow more than 50% of your monthly income in total loans, including the house loan if granted. If your loan-to-income ratio is greater than half of your monthly salary, lenders are likely to reject your application. However, you may apply for a house loan as a joint loan and have it accepted by include your family income (income from your spouse and children).
5. Failure to complete income tax returns: It is critical to file your income tax returns on a year-by-year basis, since this might be a major factor for a house loan refusal. Before approving your house loan, lenders go over your tax filing data for the previous three years.
6. Insufficient documentation: Proper documentation is a crucial element of the approval process; without it, your home loan application may be denied. You must provide all of the required papers listed on the application form. If you don't, your home loan application will be refused. Also, make sure you don't give any fake information since this might lower your acceptance rate.
7. Un - authorized property: Lenders frequently check to see if the property being financed has been approved by local authorities. The loan may be refused if the property is not approved or does not follow specific rules set out by municipal authorities. Furthermore, because older houses often do not have significant resale value, lenders are sometimes unwilling to give loans for their purchases.
8. The builder is not authorized by the lender: There may be a time when you have an approved property but your lender does not approve the builder is not approved by your lender. In such cases, home loan denials are prevalent. As a result, before applying for a loan, you should check with the lender to see if they have a list of approved builders.
9. Previous loan applications that have been denied: As previously stated, lenders will request your credit record. Your credit report contains a detailed record of all of your prior loan applications, even those that were denied. As a consequence, knowing your findings from one lender before applying for a loan from another is preferable. This will assist you in correcting your errors and ensuring that you do not make the same blunders when applying for the loan a second time.
10. Serving as a guarantee for a defaulter: Serving as a guarantor for a loan defaulter is another grounds for a home loan refusal. You should exercise great caution before agreeing to be a guarantor for anyone, as it might be harmful for you, especially if you want a loan. Before becoming a guarantor, you must be absolutely confident in the borrower's ability to repay the loan. Signing up to be a guarantee for a borrower you don't know is a bad idea. If the borrower defaults on his loan, you are not only held liable and forced to pay the remaining loan amount on their account, but it also has an impact on your credit history.