Home loan: Buying a house involves more than simply choosing the right property—it's often the largest financial transaction you will ever make. Securing the necessary funds while minimising the impact on your other financial goals is crucial. Home loans enable you to achieve this by allowing you to leverage your future income to acquire your dream home. However, obtaining a home loan is a critical step in the process of building or buying a new home. The application process requires extensive research, careful decision-making, and the preparation of necessary documents. Being well-prepared can save both time and effort.
When a home loan application is rejected, it can be due to various factors. Here are the top five major reasons for rejection:
1. Poor credit score: Your credit score reflects your financial reliability and history. A low credit score suggests issues such as missed payments or high credit utilisation, which can make lenders wary of approving your home loan. A poor credit score undermines confidence in your ability to repay the loan, impacting your eligibility.
Applicants with higher credit scores are more likely to get their loans approved and receive lower interest rates, while those with poor credit scores may face higher rejection rates or be charged higher interest rates to offset the increased risk.
To improve your chances of securing a home loan, make sure to repay your EMIs and credit card dues on time. Obtain your free credit reports from credit bureaus or online financial platforms at least annually. A corrected credit report can enhance your credit score.
Jayaram Sridharan, MD, Piramal Finance, said that your credit score plays a huge role when it comes to home loan eligibility. Simply put, your credit score shows how reliable you are in repaying your loan. A good score is often synonymous with creditworthiness, and is something that lenders pay special attention to. You can maintain a good credit score by paying your various bills and existing loans on time.
2. Applicant’s age: If you are nearing retirement, securing a housing loan can be challenging due to the limited time left for repayment. Lenders often cap the maximum age for loan applicants at 60 years and require loan repayment to be completed by the age of 70. If you can demonstrate that you have sufficient income to repay the loan before retirement, the lender may still consider your application.
Applicants nearing retirement can improve their chances of securing a home loan by including working children or a spouse as co-applicants, which helps in meeting the income requirements. They can opt for a higher EMI to reduce the risk of loan rejection.
3. Job Stability: Though changing jobs for better opportunities or personal reasons is common, frequent job changes can raise concerns about stability for lenders. Job stability is a key criterion for home loan approval, with banks typically preferring borrowers to have been with the same employer for at least three years. If an applicant works for a company that, despite being reputable, appears unstable, the bank may still choose to reject the loan application.
4. Property Issues: The property you select must meet the guidelines set by relevant authorities to be eligible for a home loan. Lenders are cautious about older properties, as they may be hesitant to approve loans for them due to concerns about their condition and lower resale value.
Since the property itself serves as the primary security for the loan, lenders closely examine its title, location, and age. They are likely to reject applications for properties with unclear titles or those that violate local regulations. Additionally, older properties may face scrutiny due to their potentially reduced market value.
To ensure a smooth loan process, verify that your chosen property has a clear title and all necessary approvals from local authorities before finalizing the purchase.
5. Repayment capacity: Lenders generally favour home loan applicants with a strong repayment record and effective loan management. Even if you have a solid credit profile, you may encounter difficulties if the primary borrower has a poor repayment history or defaults on EMI payments. This can adversely affect your credit score and hinder your loan application, potentially resulting in rejection.
To improve eligibility, applicants with lower repayment capacity can consider opting for a longer loan tenure to lower the EMI and keep their total monthly obligations within the preferred range. Alternatively, they can either make a larger down payment to reduce the loan amount and subsequently, the EMI or include working family members as co-applicants to enhance their home loan eligibility.
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