If you are planning to apply for a home loan, this is one of the most important things that you should know. There are a few major reasons why home loan applications are not approved by the banks. Though the eligibility criteria to apply for each home loan plan is different, there are a few basic criteria that apply for all home loan applicants regardless of the lender and home loan plan.
So, when you are planning to get a home loan, make sure you do not make these mistakes. And in case your home loan application is rejected, fret not, we have the solution for you.
Here are the major reasons why home loan applications are rejected by banks:
Low CIBIL score
CIBIL score is one of the most important criteria for any loan to be approved in India. CIBIL rates an individual’s creditworthiness based on the past credit history of the individual. A CIBIL score of 750 and above is considered to be the minimum one should have to apply for a home loan. The higher the credit score, the greater the creditworthiness of an individual.
Banks and Non-banking financial institutions (NBFCs) check the credit score of the applicant to know the applicant’s credit history, credit repayment pattern, defaults on the loan, late payment, etc. This gives the lenders an idea of the creditworthiness of an individual.
You can read more about how credit score impacts your home loan here –
Now that you know the importance of having and maintaining high credit scores, learn how the credit score is calculated here –
When one applies for a home loan with a bank, the bank checks the employment documents of the applicant. Employment documents showing continuous employment with the same company over the last two years, salary slips of the last six months from the time of loan application have to be submitted. Offer letter, appointment letter, appraisal letter, bonus letter, payslips, Form 16 – a copy of all these documents have to be submitted to the bank. The bank will verify the documents to authenticate them. Only upon satisfactory check will the bank proceed any further with the home loan application.
Frequent job-hopping is another negative characteristic for a home loan applicant. Switching jobs frequently displays a lack of commitment to one stable source of income. When an individual is unstable in his/her employment, it raises eyebrows of the bank official while evaluating documents to approve a home loan. A stable employment assures the bank that you will have a consistent income to repay your EMI dues in case they sanction your home loan application.
Insufficient income for loan repayment
Bank does not consider the CTC of the home loan applicant as yearly income. Instead, they evaluate the repayment capacity from the monthly income received. This is derived by looking at the net monthly salary received in hand after all the deductions. If the individual has any other loans that are running and he/she has to repay them, it is viewed as additional liability. After deducting other liabilities from the net monthly income of the home loan applicant, only a certain percentage is viewed as eligible for EMI payment.
If the home loan you are applying for is at a higher amount than the monthly EMIs the applicant can repay, it is termed as insufficient income for loan repayment.
Issues in document submission
All the information provided to the lender at the time of the home loan application should be correct and most recent. Outdated and incorrect information is a cause for instant loan rejection. All the information you provide to the bank should be backed by valid paperwork to prove authenticity. All the documents that you submit along with your completed home loan application to the bank are verified by the bank thoroughly for processing the loan.
The number of home loan applications you submit to the banks is also recorded in your CIBIL report. Any ‘rejections’ and ‘holds’ are recorded negatively in your CIBIL report and bring down your score. So, ensure that there are no issues in your home loan application document submission.
Property valuation insufficient for loan disbursal
When you apply for a loan against property, banks check the valuation of the property to determine if the loan application can be accepted. Only when the value of the property pledged to get the loan is equal to the loan amount requested, the loan will be approved.
Banks prefer properties that have good resale value, are in high-demand localities, and have a stable price in the market. Therefore, if the property you pledge does not match the expectations of the bank, the loan application will not be passed.
Now that you know the reasons for your home loan application being rejected, you can work on your application and increase the chances of getting yours approved. To compare home loans and get the home loan plan best suited for you, reach out to Fincity and we will assist you. You can email us at firstname.lastname@example.org or leave a comment below!