Home is where the heart belongs. At the end of the day when one gets tired and wants to return to a place where one can get a nice rest and peaceful time is nowhere but home. Hence, when one decides to buy a home for oneself it becomes one of the most important decisions for the lifetime. In most cases, the requisite capital in the majority amount (close to 75 per cent to 80 per cent of the property value) comes from a home loan. This requires that due care needs to be taken in applying for a home loan and accordingly the home loan application which is submitted to the shortlisted financer needs to be appropriately managed. There are various reasons why a home loan application gets rejected and if due care is taken then these rejections can be minimised. Taking proper care not only helps to avoid rejection but also to ensure that the disbursal of the loan happens swiftly. Let’s understand in brief a few of the main reasons for home loan application rejection and the means to avoid them. Broadly we will divide the reasons into three broad categories:
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Bureau related
Personal demographics related, and
Property related
Let’s take them one by one:
Bureau related:
Low credit score- A bad or low credit score in a bureau credit report will lead to near sure shot rejection of the application. A low credit score reveals to the lender that the earlier loans taken by the individual have not performed well and there have been delays, non-payment of EMIs, or settlements. This gives no comfort to a lender and hence this becomes one of the biggest reasons for rejection for the home loan application. Thus, one should try to manage all loan-related payments with utmost care and urgency.
Multiple applications at one time- Multiple simultaneous applications to various lenders not only affect the credit score but also tells the lenders that one is too desperate for a loan and is running short of credit. Hence, it is always advisable to avoid applying for a loan to various lenders at one time. One should wait for the result of the loan applied from one lender and then only move to the other lender.
Errors in details of the credit report- Sometimes the details like address, contact numbers, and even loans or credit cards are wrongly mentioned in the credit report. This may be due to wrong profile matching or some manual errors. Hence, it is always advisable that one checks the report which is usually available for a nominal fee, and ensures that any such errors are highlighted to the bureau and duly corrected.
Repayment delays or issues in loans guaranteed- Not only your loans but the loans where you have acted as a guarantor can also impact your credit score. Hence one needs to ensure that these guaranteed loans also are fully paid on time.
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Personal Demographics related:
Age of the applicant and tenure of the loan- Every lender has a minimum and maximum age criteria and a maximum loan tenure criteria. The typical age range varies from 23 years to 60-65 years and tenure could be from 5 years to 30-35 years. One should ensure that these criteria are kept in mind and at the time of application they should lie within the typical range given by the lender to avoid any rejection.
Job Stability- A long-serving job and less frequent changes in job is a big positive for any lender. But because of these reasons if someone’s loan application gets rejected then it is advisable not to keep applying, again and again, instead one should wait to improve the eligibility criteria before applying again.
Discomfort with the profile of the employer- The lender can also reject your application based on the discomfort with the employer and also with the kind of employment which one holds.
Repayment capability- The lender calculates the repayment capability by usually understanding the money left in your hands after deducting existing EMIs and other expenses. Usually, the ratio which the lenders keep in mind is 50 per cent of the salary in hand to determine the loan EMI. Hence, it is always advisable to calculate your eligibility through various online calculators and then only apply for home loans.
Property related:
Property Location and age- The location of the property is of prime importance for any lender. Each lender has its own defined distance limits up to which they finance the properties. If the home property which one chooses is beyond that distance, the application would not be accepted. Age of the property also is a key criterion of the lenders to identify properties on which they provide a loan. Hence, it is always better to check beforehand from the concerned lender regarding their policy on this criterion as well.
Property evaluations by the lender- Each lender do their own self-assessment of the value of the property and based on that they provide a loan based on the concept of Loan to Value Ratio (LTV). Usually, the LTV ranges from 70% to 90% of the value of the property. Hence, one should ensure to buy the property close to the current market value keeping in mind the independent valuation done by the lender in this regard.
Property Title- One should ensure that the title of the property identified is clear and marketable. Also, there are no issues in the approval of the property from all the relevant authorities. This ensures that any rejections on the basis of the property title are totally removed.
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The above are some of the most frequent rejection reasons which a home loan applicant faces while applying for a home loan. Ultimately, it is one’s own responsibility to ensure that one keeps his records clear and does proper homework before approaching the lender for a home loan facility. And when does manage the application prudently the chances of rejection becomes very low.
The author is the CEO of Religare Housing Development Finance Corporation
DISCLAIMER: Views expressed are the authors' own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.
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