A Home Loan is among the most significant borrowings of a lifetime. Given the fact that you can only apply for this loan, once you have your eyes set on a property, a rejection of the home loan can be heart-breaking.
While your bank or lending agency may not always tell you the reason why the Home Loan got rejected, we have enumerated a few common reasons. Once you know why your home loan was declined, it will be easier for you to put forward a fool-proof application, the next time.
For any Credit to be passed, it is essential for the lender to analyse your capability of repaying it. In case the lending agency feels that your income will not allow you be sufficient to meet your expenses, along with the timely payment of EMIs (Equated Monthly Instalments) towards your Home Loan, your application may be denied.
In case this happens, you can reapply again, once you have an increased in income (owing to a raise, or a secondary source such as rental income or part-time job). You also have the option of applying for a reduced loan amount.
2. Excessive Existing Debt
To check your ability to service a loan, i.e., repay it in the form of EMIs, banks and lenders analyse your existing debt. In case, you already have more than a few obligations in the form of a Car loan, Personal Loan ora huge Credit Card outstanding, you may find your Home Loan declined.
To reverse the situation, it is crucial for you to understand that your credit history should be commendable, and your credit score must be close to 700. You can do this by reducing the debt on your Credit Cards and decreasing your obligations towards other loans.
3. Insufficient Deposits
Lenders usually look for a deposit before processing your Home Loan application. In case, you have a deposit amounting to less than 5% of the loan; it can be a reason for Home Loan rejection.
It is recommended for you to show a deposit of at least 20% of the loan amount so that your application is swiftly processed. Otherwise, you may be required to incur additional charges such as lenders mortgage insurance (LMI), stamp duty, and legal and conveyancing fees.
4. Unapproved Builder
Most housing finance companies and online lenders only offer Home Loans for the properties developed by approved builders. Hence, if you apply for a loan for a property from an unproved builder, you may face rejection. Then again, a builder might be approved by the lender, but not the particular project that you wish to buy a house in. Even in this case, denial is possible.
To avoid this situation, you should apply for a loan, only at a bank or housing finance company that has already approved the builder as well as the project.
5. Unacceptable Property
A loan is only provided if the lender is assured that in case of default at your end; the property can be quickly sold off to settle the losses incurred by the lender. In case, you wish to buy a property that is unique concerning its location, demographics or construction; your application may get rejected.
While there is nothing much you can do about this; you can always look for a lending agency which is more flexible with its terms.
6. Bad Credit History
Lenders want to be sure of the fact that you’re capable of repaying your loan well within time, and your credit history needs to support that fact. However, numerous late payments and defaults on your end can lead to bad credit history, which can be one of the leading factors for your application to be turned down.
To rectify this situation, you can either opt for credit repair or look for specific lenders who specialise in giving loans to borrowers with a poor credit history.
7. Short Employment History
A stable income and secure employment are what guarantees a lender of your ability to service the loan. Hence, failure to show self-employment for over two years, or employment history of at least one year may lead to rejection of your application.
To meet the expectations of your lender, wait a little longer to apply so that your employment history works in your favour.
8. Frequent Applications
Each time you apply for any loan, your application gets a place on your credit file. In case you apply for loans frequently; it can prove to be a red flag for lenders. Hence, wait for anywhere between six months and a year to consider applying again. It will brighten the chances of your Home Loan approval.
In case you are close to your retirement age and may not have a steady source of income in the coming years, Banks may reject your application. In such a case, it is advisable for you to Apply for a Short-Term Home Loan. However, be warned that such an investment will lead to exceptionally high EMIs.
10. Unpaid Debts or Bills
It may come as a shock, but outstanding debts and something even as trivial as an overdue telephone bill may become the cause for your application’s denial. Lenders are cautious of your ability to repay the loans, and such defaults may lead them to believe otherwise. To avoid such a situation, it’s best if you settle any unpaid debts or bills before applying for a Home Loan.
Also Read : 5 things to ensure that your loan doesn’t pinch you as much
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