Reasons Why Home Loan Application Can Be Rejected

Buying a home is a once-in-a-lifetime purchase due to the sheer cost of purchasing a home loan and your savings are not enough to tackle this huge expense. Although these days, it has become increasingly affordable to purchase a home with the home loan offers available in the market. A home loan is a secured loan wherein the buyer will buy a prebuilt house or an under-construction house, place it as collateral with the bank, and repay this loan amount in the form of feasible monthly instalments over a long-term loan tenor of 25–30 years at a marginally low-interest rate.

The borrower can continue to use the property for the duration of the term, and once the loan amount is repaid in full, the lender will transfer the property back to the borrower. Low-interest rates are offered for a home loan because the lenders want to attract more customers who are financially capable of buying a home.

A borrower should keep in mind that receiving a home loan is a long and tedious process because the lender wants to ensure that the borrower is capable of making payments for a period of over 20 years without defaulting. Hence, there are many factors that are taken into account that could lead to the rejection of your home loan application.

Here are some reasons why your home loan application could be rejected:

1. Credit Score: 

Maintaining a healthy credit score is of utmost importance when applying for a home loan or any sort of credit. In India, a credit score is known as a CIBIL score, and the purpose of a CIBIL score is to track an individual’s financial credibility. If the borrower has defaulted on any monthly installments, or existing debt, credit card dues, etc. An applicant who has a low CIBIL score will not give the lender confidence in the borrower’s repayment capability and thus lead to immediate rejection. If you are confident in your credit score, then you should get your CIBIL score re-evaluated to check for any errors. 

2. Existing Loans:

The general rule for applying for a home loan is that you first clear all your outstanding debts before applying for a home loan because if you have an existing personal loan, credit card dues, or even an education loan, your debt-to-income ratio will be very high, leading to rejection of your home loan application.

3. Applicants Age:

Your age is an important factor for a home loan because lenders are generally looking for an applicant who is capable of making payments for a long period of time. An applicant who is close to their age of retirement will not be able to adhere to the payment schedule, making it a higher risk factor for the lender. An older applicant may face rejection due to this factor.

4. Applicants Documentation:

When you apply for a home loan you will be required to submit a set of documents for verification of your background. If the lender is unsure of your documentation you will be asked to resubmit the documents or your application may be rejected altogether. It is important that you submit complete and legitimate documents.  

5. Employment Status:

Even if you have a good credit score but keep switching jobs on a regular basis, the lender becomes uncertain about your repayment capability due to the lack of adherence to employment. In some cases, the nature of your job can also become an objection to the approval of your home loan application.

6. Property Evaluation:

If your property is located in an undesirable area and is old and unkempt, the lender will hesitate to approve your home loan application because of the resale value of the property.