After living for more than five years in a rented house, Delhi-based Rakesh Kumar finally decided to buy his own house in Noida. He arranged some funds for down payment and decided to borrow the remaining from a bank. He applied for a home loan while preparing for other formalities to purchase his dream house.
After two weeks, however, Kumar got to know that despite having a high-paying job and premium property preference, the bank had rejected his home loan application. Kumar was surprised. But this can happen in many situations. Let’s find out the possible reasons for a home loan rejection.
Unsteady employment
Your income is entirely dependent on your employment. The source of your income must be stable to repay the home loan for 10-15 years without any difficulty. Lenders consider your employment very important, and the stability of your job assures them that you will repay the loan on time. While applying for a home loan, lenders will check the tenure of your job and the credibility of your employer to ascertain that you have stable employment. If not, your application may get rejected.
Also read: Modi Govt’s pension scheme: How PMVVY gives Rs 1.1 lakh/year and what is the last date
Credit issues
A credit score shows the status of your financial health. It indicates whether the person pays his loans on time or not. Defaults and delays in repayment of loans are also mentioned in the credit report. If your credit score is poor – 600 or below — it may be difficult for you to get a home loan. A score of 700 and above is considered good and your chances of getting a loan are very high. However, even people with a high credit score may sometimes face rejection. For instance, if you have too many delays and defaults on EMI payments, rejection is inevitable.
“Since a home loan is secured, two essential conditions must be satisfied for its approval,” says Adhil Shetty, CEO, BankBazaar. com. First, you must have sufficient income to repay the loan, and second, the property must be legal and approved by the concerned government authority. “When a home loan application is rejected, borrowers often tend to reapply for it, thus running the risk of appearing credit hungry, which can impact their credit score. Instead of reapplying immediately, you should check your eligibility and work on the gaps in your financial profile to improve the chances of your loan being approved,’’ he adds.
No approval for builder
Property buying requires due diligence on multiple things. One of the critical checks you must perform is on the builder from who you are purchasing the property. If the builder is not approved by the financial institutions, no matter how premium the project is, getting a home loan can be challenging. You need to check in advance with your bank or other financial institutions whether the builder — from whom you plan to purchase a property — has been approved by them.
No approval for property
If the property is not approved, you are unlikely to get a home loan and even if you get it, the interest rates are likely to be very high. To avoid this, it is good to check the approval of the property you are buying. Sometimes the housing project is approved but some towers or some units have no approval. This could be due to many reasons. Hence, check the approval of the tower and your unit before you apply for a home loan. Advance check on approval will help you avoid unnecessary rejection. Do complete research on the property, location and approvals required before you make up your mind to purchase it.
Also read: Tax parity required in treatment of AIF, PMS and other similar modes of investment
Property valuation problems
The value of the property plays a key role in helping you get the required funds from the bank. In case you are buying a resale property and the valuation of the property is lower than the amount you require from the bank, chances are you home loan might get rejected. A lender typically gives a lower value than the current value of the property. This helps in lower the risk for them in case the loan is not paid by the borrower.
Conclusion
It is evident that the approval of your home loan application depends on multiple factors, and it may get rejected even when you have a good job. You must, therefore, perform an eligibility check before you apply for the loan to avoid its rejection.
FINDING FUNDS
* If your application has been rejected, instead of reapplying immediately, work on the gaps in your financial profile first
* Property buying requires due diligence on multiple things, including your builder and the specific property
* If your credit score is 600 or below it may be difficult to get a loan