A home is a basic necessity for everyone and a home loan helps in achieving that dream. Applying for a home loan, however, needs careful research, multiple decisions and having the requisite documents ready. Even with all these in hand, there are chances that your home loan application could get rejected.
If you have ever got your home loan application rejected, worry not! Uncovering the reasons behind the rejection can help you avoid the same mistakes in the future.
Top Reasons for your Home Loan Application Getting Rejected
- Outstanding Dues
The credit history of the borrower is a key criterion considered by lenders before granting any home loan. Your credit history includes details of all your credit transactions in the past including EMIs of loans, repayment schedule, on-time repayment, credit card dues and so on. It is always prudent to not keep any outstanding dues on debt, otherwise, lenders could consider you a high-risk category and reject your home loan application.
- Multiple Ongoing Debts
If you have multiple debts at one time, your income potential for a home loan gets calculated after subtracting the current credit repayments from your income. On the basis of this calculation, if your repayment capability looks insufficient to meet the new home loan, then the lender could reject your home loan application.
- Low Credit Score
A good credit score ensures a lender of your creditworthiness and financial capability to repay loans on time. A low credit score, on the other hand, makes the lender cautious about your potential repaying capability which could lead to lenders refusing to grant you a home loan.
To get the best home loan offers and avoid rejection of your home loan application, it’s essential that you maintain a credit score of 750+. You can quickly check your credit score for free using CreditMantri. It’s simple and quick. All you have to do is provide your mobile number, email ID and PAN and your latest credit score is delivered to you for free.
- Low Income or an Unstable Job
Having a stable job and income assures a lender of your loan repaying capacity. If you keep changing your jobs often, then this reflects poorly on your home loan application, as job stability is an important parameter for the approval of a home loan by a lender.
At least three years of being in the same job with a particular company or organization is generally preferred to be eligible for a home loan. If you have recently shifted jobs, then show proof of an increase in income to win the trust of the lender.
- Failing to File Your Income Tax Return
If a borrower has not been regular in filing his income tax return as required under the Income Tax Act, 1961, then this could lead to rejection of their home loan by lenders. It is therefore very important to file your income tax every financial year, irrespective of whether Form – 16 is received or not from your employer. Lenders and banks expect the borrower to have filed income tax returns for the last two years, before approving a home loan.
- Age Factor
Age is also a crucial factor for home loans being approved. If a borrower is nearing retirement age, then their home loan application could get rejected. The reason for such rejection is that their repayment capacity is expected to be poor post-retirement, increasing the risk of default. If they are able to prove their financial viability, then they could avail at times short-term home loans.
- Previously Rejected Loan Applications
IF you have been rejected for any previous loan, then this information is noted in your credit report, which impacts your credit profile and credit score. Therefore, it is prudent to check your credit report before applying for a home loan. This helps you know what’s included in your credit profile so you can discuss it with the lender beforehand.
- Loan Guarantor to a Defaulter
If you have been a loan guarantor to someone who has defaulted on loans or credit card dues, then you are considered a high-risk category by lenders. This could lead to the rejection of your home loan application. Therefore, undertake any kind of loan guarantee for a friend or family member only if you are sure of that person’s repayment capability. Any defaults by the borrower in repayment of the loan would impact your credit score and future loan eligibility.
- First Time Borrower
A first-time borrower does not have any credit history making their loan applications likely to get rejected by borrowers. Unless the borrower is able to provide some kind of collateral against the loan or proof of their stable job and income, there are high chances of their loan application getting rejected.
- Mismatched Signature
Signature not matching on your documents could also lead to your home loan application getting rejected by the bank.
There could be other reasons for rejection like incorrect personal particulars incorrect and so on. Therefore, it is very important that you maintain the required documents, maintain a good credit score and credit history, show proof of income and job stability to improve your chances of home loan approval.