SYNOPSIS

To avoid a rejection of your home loan application, make sure that –

you have a good credit score
your job/business is stable
your documentation is complete
the property is in the lender’s approved list
you obtain ‘No Dues Certificate’ from the previous lenders

Buying a house is much more than just selecting the right property. It is likely to be the biggest financial transaction of one’s life. Arranging funds for the purchase with the least impact on your other future financial commitments is important. Home loans help you achieve just that by leveraging your future income for your dream home.

Since home loans extend to more than twenty years into the future, the lenders follow a disciplined and well structured approval process to grant you a loan. They satisfy themselves that you are capable of repaying your housing loan without any hiccups. In this stringent process, it may so happen that your home loan application gets rejected, bringing disappointment to you. There is no reason to panic. Though it is better to familiarize yourself with the lender’s requirements before you apply for home loan, all is not lost with a rejection of your loan. You need to take an objective view of the situation and do what is required to rectify the situation. The first step would be to find out the reason for rejection and go about meticulously curing it.

Here are some common reasons for rejection of home loans:

1. Poor credit score

Your credit score represents your track record and your current creditworthiness. If a home loan applicant’s score is poor, lenders would not get confidence in his repayment capability which affects his house loan eligibility.

2. Error in credit report

Though you may have a clean credit history, it may so happen that there creeps in an error in your credit report which could result in rejection of your home loan. It is therefore necessary to get it rectified.

3. Delays in repayment of loans guaranteed by you

Though you might have a clean record with the loans that you have taken, you must remember that the loans that you guarantee for your family or friends too impact your credit history. If they do not repay the loan on time, it reflects in your credit score.

4. Frequent job hopping

Though changing jobs for better prospects or other personal reasons is common, frequent change of jobs creates a sense of uncertainty about you in the lender’s mind.

5. Lender not comfortable with the profile of the employer

Though you may have a good credit record, the nature of employment and employer also have a bearing on your prospects of getting a home loan.

6. Incomplete documentation

A home loan is granted predominantly on the basis of the documents you provide. If the documents required for home loan are incomplete or not in order, the lender is constrained while appraising your home loan application objectively.

7. Property Issues

The property that you have chosen may not adhere to the guidelines prescribed by the relevant authorities. The age of the property also has a bearing on your chances of availing a loan. If the property is too old, lenders may hesitate to advance the house loan.

8. High level of debt:

A home loan applicant may not get a loan in case he has multiple loans and high-interest debt. This situation creates an uncertainty on his repayment capacity.

9. Age:

If you are approaching retirement, you may not get a housing loan as you have insufficient time to repay the loan. If the lender is however convinced that you have adequate income to repay the loan before retirement, he may consider giving you a house loan.

10. Failure to obtain “No Dues Certificate”, from previous lenders:

If the seller of the property you want to purchase has earlier taken a home loan, he should have obtained a “No Dues Certificate”, from that lender after repaying the loan in full. Absence of “No Dues Certificate”, could lead to rejection of your home loan application.

Lessons to Learn

Here are the lessons one can learn from the above to maintain a healthy credit score and improve the chances of getting a home loan:

1. Improve your credit score.

Create a reasonable track record of timely repayments so that you achieve a high credit score which would improve your prospects of getting a house loan.

2. Check your credit report for errors.

Obtain your credit report periodically, say once or twice in a year, verify the same for errors and get them rectified as needed.

3. Keep track of loan repayments that you have guaranteed.

In your own interest, you need to follow up on such loans to ensure that they are repaid promptly.

4. Ensure that the documentation is proper.

Be meticulous with this. Your home loan application papers should be in order, exactly as required by the lender.

5. Avoid frequent job change.

Frequent job hopping presents a picture of instability.

6. Ensure that there are no issues with the property that you choose.

Check with the lender if the shortlisted property will be considered for housing loan. At the same time, do an independent due diligence.

7. Research on the house loan eligibility criteria of various lenders.

While a particular lender may not consider you to be a suitable customer, some other lender may be willing to advance the housing loan. So do a comparative study before you apply for a home loan.

In a nutshell, getting your home loan application approved is in your hands. The lender can appraise your house loan eligibility based on who you are and what documents you present. The above lessons would go a long way in getting things at your end in order leading to your home loan application getting approved.