When you apply for a home loan, the lender can look at your credit record and background, as well as your income. If any of these fails to satisfy the lender’s basic standards, the loan application would be rejected.
Aside from that, lenders would search for consistent work and income reports. Age, nationality, and even educational qualification may all have an impact on loan acceptance. Inaccuracies in your application, especially in your name, age, and address, make it difficult for the bank to produce the required information about you and can result in the application being rejected.
Most Common Reasons for Home Loan Rejection: Here are some factors that could cause your home loan application to get rejected.
1. Age and remaining years of service
The loan tenor has a strong effect on home loan eligibility. “You have more time to repay your loan if you are younger. As a result, you’ll be able to get a loan with a longer term and lower EMI. When you are older and preparing to retire soon, you would be eligible for a loan for a much shorter term since the loan must be paid off before you retire. Your loan application can be rejected if the resulting EMI is higher than what the lender accepts.
2. Low valuation of property
Usually, banks would lend up to 85% of the property’s valuation. Regardless of market value, banks conduct their own property audits, which consider a variety of considerations such as the age of the building, the condition and quality of the construction, the location of the property, and so on. Even if you are eligible for a larger loan sum based on your income, the bank can reduce or deny your loan if the property’s value is smaller.
3. Unapproved property or builder
The lenders search to see if the property has been licenced by the local authority. The lender can reject the loan if it fails to follow certain standards set out by local authorities. Banks, on the other hand, investigate builders before funding their projects. And if the property is approved, the chances of getting a home loan are slim if you want a builder who is not approved or blacklisted by the bank.
4. Age of the property
When you take out a home loan, the bank holds the house as collateral. “If the property is very old, the lenders can perform an investigation to determine the risk of structural failure in addition to their normal legal and technical investigations. In certain situations, the state of the property or government regulations concerning old property may prohibit the acceptance of a loan against it.
5. Unstable employment
Banks and non-banking financial companies (NBFCs) usually regard stable employment as one of the most significant considerations in assessing a borrower’s ability to make timely repayments. Some lenders also require that the borrower be working in the same business for at least three years in order to be considered suitable for a loan. People with no work experience, contractual employment, or who change jobs often are more likely to restrict a home loan.
Other Reasons that may effect the Home Loan Approval
6. Loan applications rejected previously
Banks will request your credit report. The credit report contains a full list of all of the past loan applications, including those that were rejected. It is also preferable to know the findings from one bank when applying for a loan from another. This will allow you to correct your errors and avoid repeating them when you apply for the loan a second time.
7. Low Credit Scores
Lenders today request your credit report even before you apply for a loan, regardless of the type of loan you plan to take. Lenders will use your credit score to determine your credit background and worthiness. For your loan to be considered, you must have a decent credit score of at least 750 points. If you fail to pay your credit card bills or current loan EMIs on time, your credit ratings will fail. These factors can suggest to the lender that your credit repayment conduct is substandard.
8. Failure to file income tax
Filing the income tax returns year after year is important, and this may be a major cause for home loan rejection. And if your company does not include Form-16, you must pay your income tax. Before approving your home loan, lenders will review your tax filing reports for the previous three years.
9. Incomplete documentation
Accurate documentation is an integral part of the approval process, failing which your home loan can be rejected. You must furnish all the documents as mentioned in the application form. Your home loan application gets rejected if you fail to do so. Also, ensure you avoid providing any false information since that could affect your approval rate.
10. Serving as a guarantor to a defaulter
Serving as a guarantor for a loan defaulter is also one of the home loan rejection factors. You should exercise great caution before deciding to be a guarantor for others, as it can often be risky for you, particularly if you need a loan yourself. Before being a guarantor, you must be absolutely secure in the borrower’s ability to repay. Sign up as a guarantor for a borrower you don’t know. If the creditor can not repay his loan, you are not only held liable and unable to pay the remaining loan amount on their behalf, but it also has an impact on your own credit behaviour.
At a summary, the approval of your home loan application is in your hands. Based on who you are and what documents you present, the lender will determine your eligibility for a home loan. The following lessons will go a long way toward keeping things in order at your end, resulting in your home loan application being approved.