What could reject your home loan?
Buying a home is among the most significant financial decisions we can make in our life. A
home loan might make you visualize your ambition of becoming a homeowner. Even before
you decide on your dream home, you ought to do significant research on the various types
of lenders (banks and housing financing businesses), interest rates (fixed or fluctuating
interest rates), and so on. Because a home loan is a signature loan that can endure for more
than two decades, you must make all efforts to guarantee that your home loan is not
denied. Here are six of the most prevalent causes of house loan rejection that you should be
aware of if you plan to take out a mortgage.
- age of the borrower at the time of application: A house loan application is
rejected if the borrower is newly hired or approaching retirement age when he
applies for the loan. Because lenders cannot adequately assess the borrower's
repayment capacity, they are often unwilling to approve loans for such individuals.
While a newcomer normally has a lower income, an individual nearing retirement
may be unable to repay the loan as his sources of income decline.
- Unstable employment: As stated previously, home loans usually have very long
terms. It requires a long-term commitment. Frequent job changes, as well as periods
of unemployment, might affect your home loan eligibility. For your home loan to be
approved, you must be employed at your present job for a minimum of three years.
If you' ve been employed for a longer period, the lender has the assurance that you
will be able to repay the loan within the specified time frame.
- Low credit scores: Regardless of the type of loan you intend to take, lenders today
request your credit report even before you apply. Lenders might use your credit
score to evaluate your credit history and worthiness. For your loan to be evaluated,
you must have an excellent credit score of at least 750 points.
- Failure to file income tax returns: Filing your income tax returns every year is
critical, as this could be a major reason for home loan rejection. Even if your
employer does not offer Form-16, you must file your income tax. Before approving
your house loan, lenders will review your tax filing data for the past three years.
- The lender does not approve the builder: You may have an approved property,
but your lender doesn't really approve of the builder. In such cases, home loan
rejections are prevalent. Therefore, before applying for a loan, you should check
with the lender to see whether they have a list of approved builders.
- Low loan-to-income ratio: You should inform your lender of any loans you have
taken, such as your car loan, a two-wheeler loan, a personal loan, and so on. This
assists the lender in determining your loan-to-income ratio. Your total loans,
including the home loan if approved, should not exceed 50% of your monthly
income. Lenders often refuse home loans if the loan-to-income ratio is higher than
half your monthly income. You can, however, apply for a home loan as a “joint loan” and include your family income (income from spouse and children) to get it accepted.