Home Loan Rejection Overview
Real estate is one of the biggest investment an individual makes. Buying a home be it as an investment or for residential purposes, may take time even years to materialize. With the current prices being quiet high, houses are not something which can be bought by paying upfront but go for a loan from banks or NBFCs.
Over the years applying for a home loan has become quite easy as most lenders have gone digital. But it doesn’t mean getting your home loan approved has become easy. Home loans are an investment that happen for long term and huge amount is invested on an individual with the guarantee he/she will pay back the home loan with interest.
This is the reason why banks have strict screening policies to make sure they are providing funds to the right person and to make sure the person does not feel burdened in paying their loan EMI and not have enough funds for their daily expenses.
Reasons for Home Loan Rejection
The reasons for a home loan rejection generally remain the same across all banks expect for one thing that every bank has its own internal policies in giving out loans the worthy borrowers. Home loan rejection could have happened due to the following reasons.
- Low credit score
- Unstable employment
- Insufficient income
- Working in a delisted private company
- Not falling into the age limit
- Living in an address which is present in the defaulter list
Home Loan Rejection Criteria
Each Bank has its own internal eligibility criteria for its home loan schemes. They are based on your salary, the job you do, the company you work for, experience etc. that any applicant needs to satisfy before moving ahead. If any person does not satisfy this criterion then the Home loan application will be rejected.
Low Credit Score
The primary reason for rejection of a home loan application is if the home loan applicant has low credit score. Any bank, when it gets a loan or credit card application will pull out the individuals credit score which is available with the number of credit bureaus operating in the country.
The credit score is the accumulated score based on how regular you were in paying back your loan or credit card bill. This is the very first step taken by a bank when screening your application. If your credit score is too low, then your home loan will be rejected.
It is best to check your credit score before you apply for a home loan
Late payment or discrepancies on your credit report
A credit report has the complete history of your loans or credit cards utilized by you, how regular you were in paying back your credit, late payments if any etc. If any applicant has the terms “settled” or “written of” against any credit account, your loan application will be rejected as these terms indicate that you have defaulted on your loan and that the lender has settled the account realizing that the individual will not pay back the balance.
Similarly, if there are any discrepancies like your date of birth is different from what is on your application then it is grounds for rejection of Home loan. It is best to rectify any such discrepancies well in advance to avoid your home loan being rejected.
Frequent job changes
Changing jobs when the right opportunity with good pay comes along is normal. If a person changes jobs frequently say within 6 months or a year, then it creates an impression that the applicant is not dependable. In such cases the bank might reject your application.
Not in lender list of approved employers
You might be working in a company which is not in the list of approved employers by banks. In such cases the banks feel that your job is not secure and not reliable to pay back the loan amount.
Salary is a very important criterion for a home loan. If you do not match the salary criteria stipulated by bank your application will be rejected.
There is also the other scenario where though you have higher income your application might have been rejected. This is because you might have lower disposable income which might not satisfy the loan EMI to salary balance ratio. That is, you do not have enough salary balance after paying your monthly EMI.
High level of debt or is already a loan guarantor
Home loans being a high value investment, also means that the EMI each month will be high. If an applicant already has debts that need to be repaid, then the loan application might be rejected.
Similarly, if the applicant is already acting as a guarantor for another loan then there is a risk that the other person might not pay their loan and will fall on the applicant who will have to pay the dues as a guarantor. This is also a reason for home loan rejection.
Co-applicant has poor credit score
In today’s scenario most home loan applicant goes for joint applications to reduce the burden of EMI. Even though taking a joint home loan has its own advantage it can also be a cause for the application to be rejected if your co-borrower’s credit score is low. This is because the loan amount and EMI will be decided based on the combined profile of all the applicants. So, if one applicant has low credit score it will bring down the overall score of the group.
The property has legal problem
When applying for a home loan all the original documents pertaining to the property must be submitted to the bank. This is because your property acts as the collateral for the home loan. If there is not proper documentation or if the property is under some legal action, then the loan will be rejected.
As a precaution it is best to verify all the documents and property details before purchasing. You can also visit the sub-registrar’s office or the CMDA to make sure there is no problem with the property legally or if it falls under any Government plan.
Frequent credit enquiry
If a person applies for credit multiple times in a very short period, you will look like you do not manage finances properly and is always looking for credit as you over spend. This shows, the bank that you are unreliable, and the home loan application might be rejected.
How will Home loan rejection affect credit rating?
There are two scenarios to explain how Home loan rejection will affect credit rating based on the application processing stage you are in
Scenario 1: If you go to a bank or visit their website to just enquire about a bank Home Loan processing fees, rate of interest, tenure etc. hence your credit score will be pulled by the bank through different sources as an initial check. This is called soft enquiry ad will not affect your credit score.
Scenario 2: On the other hand, when a bank directly pulls your credit score and credit history from any of the credit bureaus in India and find out that your credit score is low, your home loan application will be rejected. This type of enquiry is called hard enquiry. And it is this hard enquiry that will affect your credit score.
Home Loan Processing Procedure
The home loan approval process & verification processis simple and much quicker for existing customers. They can apply online and get pre-approved offers on home loans with attractive interest rates. The loan amount is directly credited to their account instantly.
The application process is different for other customers. The borrower needs to either apply online or directly download the application form from the official website or visit the nearest bank branch. They can also call the bank home loan customer care to proceed with the application process.
A bank representative will collect the filled in application form and all the necessary documents required for verification. The bank will do a background check on the customer’s home and professional information. If there are any discrepancies with the information provided, the home loan application is likely to be denied. After passing through document verification and eligibility criteria, the approval process moves to the final level. At the final stage, the home loan interest rate and tenure are fixed and sent for your acknowledgement.
In case your home loan application was rejected you will receive loan rejection letter which will have details on why your application was rejected. You can also find sample letters online by searching for loan rejection letter sample.
Home Loan Rejection FAQs
1. Are there any no rejection home loans?
Since home loans are a huge investment on the part of the bank they will verify the application thoroughly and will reject any loan applications if they do not cater to their eligibility criteria
2. Where can I get details of Home loans?
You can get the details from any bank website, by visiting the local branch you can receive all the details. You can also contact bank home loan customer care to get the details.
3. What Is the home loan processing time?
Once the application is submitted bank will take about 3 – 7 working days to run the background verification to approve the loan.
4. How to check home loan process status?
You can contact bank home loan customer care to get the details.
5. Why was my home loan rejected though I have good credit score?
As mentioned apart from credit score there are other factors that need to be satisfied before your loan can be approved. If you do not cater to any criterion your loan application will be rejected.
6. How to apply for home loan
You can apply for a home loan on any bank’s website or by visiting the nearest branch where you can find the application form which must be filled and submitted.