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Wednesday, March 1, 2017

Why Home Loan Application get Rejected

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Shailendra Kumar, 28, found his dream home in the Mumbai suburbs. He decided to fund the purchase partly through his savings and partly through a home loan. But soon after applying for a home loan, he received an email from the lender. The email informed Shailendra that his application was rejected. This was shocking to Shailendra. After all, he had a well-paying job and a good builder was involved.

Here are eight reasons the lender may have rejected Shailendra's home loan application.

1.       Credit score issues

One of the primary reasons is a poor credit score. Your credit score determines your creditworthiness and your ability to repay the credit. It depends on your past loans, credit card history, repayment track record, and current debt. The higher the score, the higher your chances of getting loan approval.

2.       Unapproved builder

Banks do not approve loans connected with all builders. The builder concerned may be reputed in your city. But the bank where you apply for a loan may not recognize it. Ask the builder to provide the list of banks that have approved them. Different banks have different criteria for approvals.

3.       Unapproved project

Say, a builder has approval from a bank. The bank may not approve all of that builder's projects. A few of those projects may be eligible for home loans. Others may not. In some cases, the bank may not approve some phases. When doing your homework, check for bank approvals project-wise. This will help you avoid loan rejection.

4.       Property valuation

Banks sanction home loans based on the price derived by their own due diligence. The amount finalized between you and the seller does not matter. There is no problem if the valuation is higher than the price decided by both parties. But if the valuation is lower, the loan amount sanctioned may be less. The bank may even reject the loan.

5.       Frequent job hopping

Job stability gets high priority when reviewing home loan applications. Some banks even require you to be a permanent employee with a company. You need to have served a specific number of years with the employer to show stability. Job hopping shows instability. This may affect your repayment ability.

6.       Income and its treatment

A salaried person has a fixed source of income. But this is not true for a businessperson. Unless your business has been performing well for a considerable time, the bank could reject your loan. This may happen even if you have an income from non-genuine sources. Keeping proofs of income and investments would help.

7.       Borrower's age

A regular flow of income also depends on your age. Say, you have started working recently and have a long working life ahead. Your chances of getting a loan are good. But suppose you are nearing retirement. The bank might worry about the loan repayment. Hence, it may reject your loan application.

8.       Liabilities

Any existing liabilities increase the chances of rejection. For example, you may have a car loan or a loan on another property. Banks do not want you to default on repayment due to excessive liabilities and limited income.

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