Home loan rejection is quite common these days. With more and more people seeking a housing loan, banks have installed strong rules when it comes to approvals. Let us checkout 5 key reasons why a home loan can get rejected.
Low credit rating
Credit score is a numeric ranking given to an individual based on the loan repayment and credit usage history of the loan applicant. Missed credit card payments, previously rejected loan applications, foreclosure, bankruptcy can lower the rating. So, if the credit score is low, it raises a doubt about the credibility of the borrower. For this reason, low credit/ CIBIL score is one of the prime home loan rejection reasons.
Lack of regular income
Banks prefer people with steady income when giving a house loan. So, for job hoppers or people with freelance or part-time jobs, it might be difficult to get a home loan. Many financial institutes require evidence of at least of 2 years constant employment. Valid employment proofs like latest pay slips must be submitted to the lender.
Low down payment amount
This is another factor to be considered while applying for a housing loan. If you need more than 80% of the cost as loan, there are high chances of ahome loan rejection. So, people who pay more down payment have higher chances of getting a home loan.It is better to save and get ready to pay more amount as down payment to get an instant approval of house loan.
Existing loans
Having too many loans might make banks feel uncertain about the financial decisions you take. So, if you have future plans to take a home loan then, it is advisable not to take multiple loans in the meantime; short term personal loans are the safest option. Banks approve the loan application only after reviewing income-to-debt ratio. Multiple loans might mean more liabilities than income to the bank.
Incomplete loan documentation
Proper filling of the home loan application form is a must to avoid home loan rejection. Submission of false information or incomplete loan details might lead to housing loan rejection. An erroneous credit rating report can also lead to rejection of a home loan. So before applying for a housing loan, the applicant should review the credit report, fix the mismatches and errors. The signature on the loan application form should match with the sign on the other financial documents.
The loan applicant should also keep in mind that it is easier to get a home loan on high value and high demand property. Selecting a property older than 20 years can be one of the primary home loan rejection reasons.