Buying a home is the biggest financial transaction of one’s life. So, you have saved enough money over the years for the down payment and applied for a Home Loan. However, as you waited for the approval, you received the bad news that your application has been rejected. Why? Risk profiling and credit lending policies may slightly differ from one bank to another, but what is it that leads to the rejection of your loan application?
Banks often do not approve certain builders for their properties. If the builder or property you have chosen isn’t approved by your bank, it could lead to Home Loan Rejection. Before applying, ask your builder which banks have approved them and which have not.
If you have applied for a Home Loan for a property that is beyond what you can afford, there is a chance of rejection. Banks consider current income as well as financial commitment of the applicant during the approval process. Your income should be enough for not only paying your monthly EMI but also your living expenses. If your co-applicant has a good income, you gain a competitive advantage.
If you had an unhealthy financial record in the past such as bankruptcy, litigation cases, etc., banks will trace all these records. Banks also consider your current financial health. Past loan rejections may also negatively impact your application.
Have you already taken loans like Personal Loan, Car Loan, etc.? Are these loan(s) still running? Do you have huge Credit Card bills to be paid each month? If yes, banks may either lower the loan margin or reject your application, especially if the total amount you pay each month is high against your monthly income. Banks consider the debt service ratio (DSR) based on your total loan commitment against your total income. Higher the DSR, higher is the chance of your Home Loan rejection.
The Central Credit Reference Information System (CCRIS) tracks your repayment of past loan credits and other monthly payment commitments like Credit Card bills, etc. If you have a track record of late or overdue repayments for even a small amount, your loan application may get rejected. Hence, maintain a good repayment record.
If you do not have any past repayment record, banks cannot determine your repayment behavior. Hence, if you are geared up to Apply for a Home Loan, ensure that you use your Credit Card and pay bills on time every time. Alternatively, if you don’t use Credit Cards, ensure that you have a savings account or fixed deposit account with the bank you wish to approach for the Home Loan.
Before applying for a loan, ensure that you have a stable job for the past several months. Lower the base salary with no fixed earnings every month, higher is the chance of a rejection. Furnish pay slips of several months of your stable job with your application to avoid a rejection. A consistent EPF (Employees Provident Fund) contribution by the employer is an added advantage.
Have you submitted all documents pertaining to your Home loan? Banks carefully observe your income-related documents during the approval process. Not submitting all documents or the right documents may lead to a rejection. Ensure that you make no errors while filling the application form.
Banks follow a well structured and stringent approval process while granting a loan. Hence it is advisable that you conduct a research beforehand and familiarize yourself with what banks consider when approving loans. Once you know the cause of rejection, you may not face it the next time you apply for it, as you will be well prepared to avoid a rejection.