The real estate market is on a roll over the past couple of years, as many in the formal workforce seek out comfortable and spacious housing. Now, as interest rates peak out in India, there is anticipation that a rate cut could happen in India within the next few quarters. The US Federal Reserve has already slashed rates by 50 basis points.

When the RBI also starts the easing cycle, home loan rates would fall and become more attractive. So, if you secure a loan now, start paying the EMIs and when rates fall, the monthly instalment would be more than the original EMI and can help in prepayment.

However, when you apply for a home loan – perhaps, the largest debt you will take in life – you need to be careful to avoid rejection of your application.

Here are the key reasons why home loan applications could be disapproved. We have considered only the key financial and personal reasons, and have not gone into the documentation angle.

Financial factors

The first key reason for rejection of a home loan could be a low credit score. The credit score, as determined by any of the four credit bureaus, is a numerical assessment of your creditworthiness.

In general, for borrowers with scores of less than 750 and certainly for those below 650 – both on a scale of 900 – lenders may not be readily forthcoming to give a large-ticket credit such as home loan.

You may want to check your credit report once in a year at least to ensure that there are no errors and all your payments made and dues cleared reflect accurately in the report. Any mistakes or errors must be taken up with the concerned credit bureau immediately.

If the scores are accurate and low, you will need to work on your score via prompt repayments over a period of time. Defaults and delays in payments are viewed adversely.

The second important reason is the high debt-to-income ratio. This ratio is nothing but the ratio of the EMI on the home loan taken to the monthly income of the individual.

Usually, the range acceptable from a financial prudence standpoint and indeed a factor that is comforting to lending banks is a ratio of 35-50 per cent – lower the better.

So, if you seek a large-ticket home loan with, say, ₹1.2 lakh as EMI and your monthly income is ₹1.5 lakh, the ratio comes to 80 per cent. The bank would obviously be concerned on how you would be able to manage other household expenditure when such a huge percentage goes to monthly instalments and lower the loan size or reject the application.

You can try to go for a joint loan with, say, your spouse or parent to improve the eligibility chances in such cases.

Then, the third factor influencing home loan eligibility is the number of other loans that you are currently servicing.

If you have consumer, personal and vehicle loans running simultaneously, and on top of that use up much of your credit limit every month, then the lender would doubt your ability to take on additional burden, especially something as large as a home loan.

The idea is if you already spend a large part of your income on servicing these loans, how would another loan that would take away 50 per cent of your income every month be repaid.

Non-money aspects

You may earn a high income and have a reasonably good credit score and repayment history. However, if you are one of those people who frequently change jobs in search of better opportunities and monetary benefits, it is a red flag for many lenders. Most banks prefer borrowers who have a stable employment history – people who spend considerable number of years with one employer before moving on.

With frequent job-hoppers, the obvious concern for lenders is if the opportunities stop and the borrower is unable to find new employment after quitting the old workplace.

Reputations of companies worked also play a role. Working with relatively-unknown companies or start-ups without well-known founders, etc. isn’t considered favourably by employers.

Though unfortunate, age is also a key factor in determining home loan eligibility. The chances for those above 50 are usually much less than for people younger, say, those in their late-30s and early-40s. This is because as you near the retirement age, there would be concerns about your ability to repay the loan. Of course, you may still be able to repay your loan fully upon retirement. Or you could service your loan even after retirement, if you receive a generously large and assured pension from your employer. But that will still need some explaining with the bank.

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