Securing a home loan is by far an important criterion in getting the home of your dreams. While the paperwork involved may seem simple enough, there are several factors involved in the processing of a home loan. Lack of attention to smaller details may result in your home loan being rejected.
Shibu Sukumaran, Partner – Capital Core is a professional with over 13 years of experience in Home Loans and Mortgages. He explains to you the various aspects you need to look into when applying for a home loan, to ensure that it is not rejected.
Bad Credit Score:
Thanks to a multitude of advertisements and general increase in awareness, you now know that a bad credit score may result in your loan application being rejected. Before you apply for a home loan, it is best to know what a good score is. Any score above 700 is considered good. Besides your score, a bank will also look into:
- Past loan repayment track record
- Number of loan enquires
- Number of non-EMI based loans (credit card, gold loans, overdraft)
- Whether applicant is guarantor for any loan and the loan repayment track record of that particular loan
If your research shows you that you have a bad credit score, then here are some ways in which you may improve it:
- Reduce the number of loan enquires you make
- Reduce the number of unsecured loans you have (Personal loans, Credit Cards)
- Bring down the outstanding on your credit cards
- Repay by your due date time frame (avoid EMI bounce and pay at least the minimum on your credit card before the due date)
- Avoid being a guarantor for your relatives or friend’s loans. Any loan delinquency on their part may result in rejection of your loan application
Your Loan Application:
Before filling in your loan application form, you will need to do your due diligence. Here are a few reasons why it may be rejected. These reasons may be attributed to you not doing your homework well:
- You are not eligible for the loan amount you are seeking based on multiple factors such as income, age etc.
- Property cannot be funded as per policy (Deviation, B Khata, number of units, outside geographical limits etc.
- You may have loans you have not declared
- Your employment status may be considered unstable
- You have multiple loan enquiries indicating uncertainty
- Loans availed after present Home Loan is sanctioned
- Credit Card/ Loans: written off or settled.
- Processing fees cheque bounce
Various scenarios that may lead to home loan application rejection
Though listed above, there are several common scenarios that unwittingly lead to the rejection of a home loan application. Let’s take a look at some of them.
Credit card fraud:
There are chances you may be the victim of credit card fraud. In such cases, your loan application may be rejected. Here are some tips to safeguard yourself:
- Do not settle any loans or credit cards. Always consider full closure and ensure you have closure proof from the bank
- Do not serve as guarantor for any loans other than for your spouse/father/mother
- Never apply for credit cards or loans at malls or other such public spaces
- Ensure you have closure communication on any loans / credit cards applied but not availed from the bank.
- Apply for your CIBIL report directly and clear any anomalies in the report before applying for the loan.
Applying to multiple banks simultaneously:
This is a common practice among most people who are on the look-out for a home loan.It is not a wise decision to apply to several banks simultaneously because it resultant rejection may reduce the credit score of the applicant and co-applicant. Several applications raise a red flag at the bank and they may feel that your papers are not in order or you may be purchasing multiple properties at the same time.
Unstable job scenario:
Here are a few scenarios with regards to employment and home loans that you need to consider
Scenario 1: You have resigned from your current job and are in the notice period and have a offer from a new company.
>> Here you may have applied for a loan with the offer letter of the new company and payslips of your old one. The loan may be sanctioned based on the new company offer letter but, the disbursement will happen after you join the new company and receive your first salary. The office verification will be done with the new company.
Scenario 2: You have resigned from your present job and are in notice period without an offer from a new company.
>> You should not apply for the loan, as it will be rejected.
Scenario 3: You have joined a new company but are yet to receive your first salary
>> You may apply for a loan with the details of the previous company, relieving letter, new offer letter and appointment letter. The loan will be sanctioned based on the new offer letter and disbursed after the first salary credit.
Scenario 4: Loan is sanctioned based on the present salary and then you resign from the present job.
>> You have to submit the new company appointment letter and first salary credit bank statement before the sanction letter is revised and disbursed.
Age: Based on policy there is a minimum / maximum age that is predefined for a bank. It is important that you find out what this age is before you apply for your loan.
Location:There are predefined locations which are not funded by banks. Check with the bank before applying for a loan.
Applying with co-applicants: Below is a matrix that will help you with your application. Any other combination may risk being rejected.
- Self + Wife
- Father + Self
- Mother + Self
- Father + Mother + Self + Wife
- Self + Brother ( is allowed if there are two units in the building )
Any other combination is a deviation and is case-specific. It will be decided on the strength of the loan application (like property, income, past loans and present, relationship with the bank etc.)
These are some of the reasons that may result in the rejection of your home loan. It would be a good idea to do your research and consult a home loan advisor before you send out your application.
Ramesh Kumar has extensive experience in real estate in a career spanning over a decade. With his critical expertise in sales and marketing, he has successfully launched and closed out projects across a complete spectrum of properties like plots, budget apartments, comfort homes as well as luxury villas.
Ramesh Kumar holds a Post Graduate Diploma in Management from Bombay University and is currently serving as the Deputy General Manager – Marketing & Sales at Vakil Housing.