When you watch any home loan advertisement on television with all the happy and smiling faces in it, settling down into a brand new home, little do you know the hard work behind the satisfied smiles of the home owners. New loan applicants are oblivious to the complications they could face while submitting a loan application, the documentation needed and the follow-up work involved.
Through this article, we have created a list of reasons why your home loan could get rejected and this will help you to tide over them and avoid these common reasons:
- Poor Credit score: Your credit score is a critical factor being considered when home loan companies are reviewing your home loan application. If you have a poor credit score, you can take steps to enhance it and then apply for the home loan for a positive response from your home loan company. Here’s what you can do to maintain a good credit score:
1. Make sure your credit card bills are paid in time.
2. Use your credit card judiciously and keep a track of payment due dates.
3. If you want to take a loan against your credit card, make sure you have cleared your existing dues before applying for it.
4. Remember that late payments reflect badly on your credit score and will become a hurdle while applying for a home loan.
- Non-filing of Income Tax Returns: It is necessary to keep a clean track record of filing income tax returns on a regular basis, as home loan companies ask for past two years records of returns filed. Make sure you file income tax returns before the due date and ask for Form 16 from your employer if you are salaried.
- Address in defaulter’s list: If someone from your family who is living at the same address as yours, has defaulted on repayment of any loan, there is a probability of getting rejected for home loan. Banks have the addresses stored in their database and this could work against you.
- Other Ongoing loans: If you have already availed of other loans like credit card, personal, vehicle or consumer loans and are paying a hefty EMI, the bank will review your application carefully. If the loan company feels that your repayment capacity may get affected by a fresh loan, your home loan application could end up in the rejection list.
- Loan Guarantor for a Defaulter: If you have stood as a guarantor for a friend or relative’s home loan, make sure that person has a strong repayment capacity, before you sign on the dotted line. If the person fails to repay the loan for some reason, you will be responsible for repayment and your name will feature in the list of defaulters.
- Age: If you are a salaried professional and close to retirement, banks will be vary of sanctioning your home loan. This is purely because your repayment capacity will diminish after a few years. At such times, you could opt for a co-borrower who has the requisite number of years left to comfortably repay the home loan.
- Frequent job hopping: If you have been jumping from one job to another on a regular basis, you could be in trouble while applying for a home loan. Banks and home loan companies look for job stability and some loan providers need the loan applicant to serve an organization for a minimum of three years. Your company’s credentials will also matter a lot when your home loan application is being scrutinized, so choose carefully if you plan to buy a home in the future.
- Prior loan rejection: If your home loan application has been rejected in the past, this will get recorded in your CIBIL rating and show up when a fresh application is made. Do not apply simultaneously with many companies as one rejection could ruin the show for you.
Experts recommend calculation of your net worth to ensure you are ready to commit to this long term loan repayment. Use the online calculator to get an idea of the EMI you will have to pay and also understand your home loan eligibility. Apply for a CIBIL report prior to your loan application so that you know the drawbacks you have. Check these reasons and prepare yourself accordingly to get a positive response to your home loan application.