16-Nov-2022 | Home Loan Eligibility
Income Proof ✔
Property Papers ✔
Personal Documents ✔
Everything seems right, but still, your loan application was rejected.
True! Nothing can be more depressing than this!
The financial institutions lure you with so many schemes, attractive offers, rapid disbursals, hassle-free processing of loans, etc. but still, they hold every single right to reject or accept your loan application. If they found any reason that marks your application as a dicey one, then they are likely to put your home loan application on hold until further verification or even they can reject it, if things come out to be suspicious.
But before submitting your file to the next lender, wait and understand, that what becomes the reason for rejection, and make sure you figure it out before applying for the home loan again.
In this article, we are presenting some of the primary reasons that could probably be the causes behind the rejection of your home loan application.
Reasons for home loan rejection
Buying your dream house takes huge money, time, and effort. The maximum of the population depends profoundly on financial institutions to borrow funds. A home loan is one of the best possible means for building or purchasing your dream house without straining your savings or cutting down your monthly expenses.
Here is the list of the reasons that result in home loan rejection:
Ø Low Credit Score
It is the primary reason behind the rejection of your home loan application. A credit score is the criteria to measure the applicant’s repaying capacity and creditworthiness. Whenever any application comes, the lender performs a credit score check. A credit score of 750 or above is regarded as good for further processing of the loan application. A poor score negatively affects your house loan eligibility. Thus, it is always recommended to maintain a good credit score for quick approvals.
Ø Instability in Job
Changing jobs is solely a personal call and till the time a person is attaining progress and having a regular cash inflow, it should never be a concern. But from the lender’s perspective, frequent job change is marked under the category of unstable employment and thus, it can question your repaying capacity and home loan eligibility. Noticeable instability in your job gives the bank the right to reject your home loan application.
Ø ‘Red Zone-marked Properties’
Some properties come under the ‘red zone’ area and thus banks/HFCs do not finance home loans for them. These properties are regarded as risky ones and thus, banks avoid indulging in such dealings. Some locations do not have bank approval. Hence, you must check before applying for the loan that the property does not fall under the red zone.
Ø Multiple Loan Rejections
The lender can easily know if any of your previous loan application has been rejected or not. The CIBIL report has a complete record of such rejections including the reasons behind the rejection and the banks who have rejected your application. This results in more severe checks on the applicant’s file. It is advised to correct those mistakes before applying for a home loan again.
Ø Documentation Issues
While applying for a home loan, you must always be sure that you have all the necessary documents required for a home loan. If the documents are incomplete or found false, then the bank can reject your file right away. In the verification of the documents such as property papers, income proof, identity proof, etc. are not authentic and fall under the category of forged or misleading, no financial institution will take your application further. Therefore, it is important that you share all correct documents so that the application can be processed smoothly.
Ø Past Defaults
At the time of processing a loan application, one of the key areas of concern is the record of past defaults in the name of the applicant. In case, you have any record of repayment defaults or missed EMIs, then it will reflect in your credit history. It can become the reason for the rejection of your application. It is essential that you make timely payments for all the EMIs and other dues.
Ø Credentials Mismatch
It is considered as one of the most careless mistakes of an applicant that may result in a home loan application rejection. While completing formalities, the borrower needs to sign several pages and if the credentials are not the same on all the documents or pages, then because of the discrepancy issue, the bank/HFCs will reject the application.
Ø IT Returns
As a responsible citizen, it is important to file your income tax every year. Irrespective of the fact that you have a taxable income or not, it must be done. The Banks/NBFCs and HFCs require the ITR statement for the past three years. If not available, then there is a high chance that the application would be rejected. Before granting the loan, the financial institutions check for a clear track record to minimize their risk.
Ø FOIR is high
Whenever a bank receives an application for a home loan, a representative of the bank initiates a quick background check on the applicant’s income to analyze whether he/she is capable enough to repay the amount or not. For this, the parameter used is FOIR. It stands for ‘Fixed Obligations to Income Ratio’, which helps in determining the creditworthiness and loan eligibility of an applicant. In case, the loan amount is far beyond the applicant’s repaying capacity, the home loan application gets rejected.
Ø Absence of NOC
NOC i.e. No Objection Certificate is the mandatory document when it comes to requesting a home loan. If the property you are interested in, already holds a history of loan taken, then the borrower needs to get a home loan NOC, better known as a ‘No Dues’ Certificate’. If the applicant is unable to provide this document, then there is a high chance that the bank may reject your home loan application.
There might be many other reasons why banks or financial institutions reject home loan applications. If you are also looking to avail a home loan, you must check the eligibility criteria and the documents required for a home loan to get prepared in advance and have all the necessary documents to save yourself from rejection.