It happens so often. You apply for a home loan and are confident that all your documents are in place. You are also confident that the bank had no reason to reject your application. However, you still find that your home loan application could get rejected. Why does that happen? There are several reasons for rejection of home loan by the bank. Here let us look at some common reasons why the home loan application gets rejected and how awareness of such risks can protect you better.
WHY DO HOME LOAN APPLICATIONS GET REJECTED?
If you made a home loan application and it got returned, there is obviously a reason for it. Here let us look at some common reasons for rejection of home loan.
- One of the most common reasons for rejection of a home loan application is low missed EMI payments in the past etc. If your score is 750 and above, the approval should be smooth. However, lower the score, the lower your chances of getting loans approved. Often, your repayments may have not been updated, in which case, just take it up with the banks and ensure it is updated in CIBIL records.
- Quite often, you age can be a factor. The older you are, the less service you have left and hence lower the repayment period available to you. Normally, it can get quite tough to get a home loan if you are above the age of 50, unless you can demonstrate the ability to repay the loan in less than 10 years. Age is a key factor.
- Don’t be a rolling stone and keep changing jobs at short notice. Changing jobs once in a while is OK but banks are not too comfortable with a rolling stone. It makes lenders doubt your reliability and sense of responsibility; in which cases, they have a legitimate reason to reject your loan application.
- Your employer profile also matters. Persons who are in risky industries or cases where employers have a number of legal and regulatory investigations going on against them are looked at unfavourably. Lenders believe that in such cases, their risk is just too high and they would prefer to give such cases a skip.
- Missing documentation is a common reason for rejection of loan applications. You could have missed some documents or may have deliberately avoided offering such documents. Such instances can work against the approval of your home loan.
- In a home loan, the property is mortgaged to the lender, so clean title to the property is of utmost importance. They will look for clear title, a no-encumbrance certificate and proper link documents to establish the ownership audit trail. There are also cases where the builder may be blacklisted or the property may be under dispute. In such cases, there are chances of the loan application being rejected.
- It is not just the CIBIL score, but the lender also makes an independent assessment of your family debt and the repercussions it may have. Not having adequate insurance to cover risks can also be a negative factor in such cases. If the lender feels that the home loan could add too much to the burden of the borrower, they may skip the application and reject it. Lenders give a lot of weightage to repayment capacity.
- Quite often, in their enthusiasm to get their loans sanctioned, borrowers tend to be economical with the truth. They may not disclose defects in the link documents, mismatch of signatures, legal cases pending against them, contingent liability due to guarantees given etc. If such things emerge in the subsequent verification, then it can be a solid ground for rejection of the home loan application.
- Sometimes home loans get rejected if the no-dues certificate is not in place. In some cases, the society may not give the no-dues certificate. In the case of secondary purchase, the earlier owner may not have got a no-dues certificate from their lenders. These can become cases for future litigation and banks avoid lending in such cases.
- This is something you often don’t fully appreciate when you sign up as a loan guarantor. It is essential to ensure that the person you stand guarantee has a good payment track record. If they default, the liability can fall upon you. It also affects your credit standing since guarantees are recorded as contingent liabilities in your record.
To sum it up, there can be several reasons for rejection of home loan. The onus is on you to ensure that your home loan application is complete and also honest in all respects.