Lenders consider several factors while evaluating home loan applications. Those failing to match any of the eligibility criteria may fail to get the application approved.
Here are some of the major reasons for home loan rejection:
Poor credit score
Credit score is a numerical representation of an individual’s creditworthiness. It denotes how one has managed his or her debt in the past. Credit scores of 700 and above usually indicate disciplined credit behaviour and lower chances of loan defaults. This leads the lenders to use credit score as one of the first filters for evaluating home loan applicants.
As part of the risk-based pricing strategy, many lenders also factor in the credit scores of the home loan applicants while setting interest rates.
Thus, applicants with higher credit scores have greater chances of loan approval and at increasingly lower interest rates while those with poor credit scores have higher risk of loan rejection or are charged higher interest rates to compensate for the higher credit risk associated with such applicants.
Tips: Ensure you repay your EMIs and credit card dues by the due dates. Also fetch free credit reports from the credit bureaux or online financial marketplaces at least once a year. Report the errors or misinformation, if any, to the lender concerned or the bureaux for rectification. A rectified credit report may improve your credit score.
Applicant’s age
Most lenders usually cap the maximum age limit for loan applicants at 60 years. Additionally, most lenders usually require borrowers to complete loan repayment by the age of 70. Thus, applicants nearing retirement age, with inadequate repayment capacity to complete EMI repayments by the age of 70, have lower chances of loan approval.
Tips: Applicants nearing retirement age can include working children or spouse as a co-applicant to raise the chances of home- loan eligibility. Alternatively, they can make and/or pay higher EMI to cut the risk of loan rejection.
Repayment capacity
Lenders usually prefer home loan applicants whose total monthly loan repayment obligations, including the EMI of the proposed home loans, remain within 50-55% of the monthly income. Thus, applicants exceeding this ratio may have loan application rejected or are required to make bigger down payments.
Tips: Applicants having low repayment capacity can opt for longer tenures, if possible, to reduce home-loan EMIs in such a way that their total monthly repayment obligations remain within 50-55% of the monthly income. Else, they should either make a bigger down payment to reduce the loan amount and thereby, the home loan EMIs, or add working family members as co-applicants to increase the home-loan eligibility.
Job/ employer profile
Lenders also consider the employer’s profile or occupation profile of the home loan applicants while evaluating the home-loan applications.
Applicants working with government/PSUs or reputed private sector companies have higher chances of loan approval due to their higher job certainty. On the other hand, home- loan applicants employed with smaller companies, unlisted entities and new start-ups may have lower loan eligibility due to the low job certainty.
Tips: Applicants failing to get home-loan approval from banks due to their occupation or employer profile can approach Housing Finance Companies (HFCs) for home loans.
HFCs usually have less stringent home loan eligibility criteria than banks. Alternatively, they should visit online financial marketplaces to find multiple lenders open to offer them home loans based on their credit profiles.
Property related issues
As the property purchased or constructed through home-loan proceeds acts as the primary security for any home-loan lender, lenders critically evaluate the property’s title, location and age while evaluating home-loan applications. Thus, home-loan lenders reject loan applications for properties with unclear titles or violating the various regulations set by the local authorities.
Lenders may also desist from approving home-loan applications for old properties because of their lower saleability.
Tips
Make sure that your chosen property has a clear title and the necessary clearances from the local authorities before signing the purchase deal.
(The writer is Head of Home Loans Business, Paisabazaar)