Purchasing a house is a lot more complex than just selecting the right property. In fact, it is one of the biggest financial decisions of an individual’s life. And for most of us, take help of home loans to buy or build our own home.
However, as important as it is for us to select the right property, it is equally critical for the lender to select the right borrower!
A home loan is generally a long-term commitment and most loans generally extend from 15 to 20 years. For this reason, the lenders always follow a structured and controlled credit policy before approving any home loan.
Your home loan eligibility is majorly dependent on 2 things –
- Your ability to repay the loan
- Your willingness to repay the loan
But how does the lender ascertain the ability & willingness to repay? Is it only dependent on your income & credit score or there are other aspects too? Well, there are many other parameters that home loan companies consider while scrutinizing your home loan application.
One needs to know that the approval process of a home loan is quite stringent and there is a possibility that your home loan application may get rejected in some cases. It is very important that you familiarize yourself with the lender’s requirements. You need to understand what may go wrong and how can you safeguard yourselves from these reasons.
7 reasons why your home loan may get rejected
Believe it or not, but the age of the person applying for a home loan creates an impact in the decision-making process of a home loan application. Let’s take 2 scenarios to understand this better.
- If the person applying for a home loan is less than 21 years of age, a lender may be quite hesitant in granting a home loan owing to the unsureness of the applicant’s employment or his/her capacity to pay back the loan on time.
- If the applicant is aged 52 years and is nearing his or her retirement, the lender may be reluctant to approve their home loan. This can be due to uncertainity of income stream after retirement age of 60 Considering that the loan tenure is 15-20 yearslenders will look for an income stream for the entire period of the loan
Your professional background or work history
The lender will surely check your employment history. If your lender finds out that you have been unemployed for a long time or have a habit of switching jobs too often, it is possible that your lender may reject the home loan application. Switching jobs quite often or being unemployed for quite a long time creates an impression that the borrower is unstable. Hence, it is advisable to maintain a stable job history to improve your credit-worthiness.
If you have a higher FOIR (Fixed-Obligation-to-Income ratio)
This Fixed-Obligation-to-Income ratio is a ratio of the total monthly obligations including the EMI of your applied loan to your monthly income. Items like, monthly insurance premium payments, EMIs on ongoing loans (if any) is added with your home loan EMI to arrive at the fixed obligations (Home Loan EMI Calculator). Usually, the ideal FOIR is <50%. This means your committed monthly outflow should not exceed 50% of your total monthly income. A higher Fixed-Obligation-to-Income ratio (FOIR) ratio means you are a little stretched and that your home loan eligibility will come down.
When your co-borrower or guarantor has a bad/negative credit history
It is a known fact that your credit score plays a key role in your home loan approval. But did you know, it could be your co-borrower or your guarantor who is the true reason behind the rejection of your home loan application! When your co-borrower has a bad or negative history of loan repayment, there is a chance that your home loan application can be rejected by the lender. Similarly, if the credit score of your guarantor is poor, this will have a negative impact on your home loan. Hence, it is advisable to collaborate with a guarantor whose credit history is healthy.
Multiple home loan applications at the same time
At times, many home loan applicants get too desperate to get a loan approved and end up applying to numerous lenders at the same time. The credit bureaus are extremely vigilant and have a track record of all your loan-related applications and activities. Each time you apply for any type of loan, the application enquiry reflects in your credit report and has a negative impact on your credit score. The lender will find out in your credit report that you have applied with several lenders for a loan which may lead to the rejection of your loan. Hence, when applying for a home loan, one needs to be patient. This is a rule everyone needs to abide by.
If your previous loan applications have been rejected
This reason is quite similar and related to the previous reason we stated above. If your credit report shows that the previous loan application has been denied, the lender will be quite skeptical in approving your application. There is a chance that your credit worthiness might be doubted. In such a case, the application process gets even tougher & it is a possibility that your loan gets rejected.
If you possess any property that is unapproved
Your property will be the sole collateral against your home loan. Hence, it is of utmost importance to the lender that the property is devoid of any kind of issues. There can be a number of issues/problems associated with the property. For e.g. legal issues, location issues, construction approval issues etc. Not just this but the reputation of the contractor or the builder of the property can also play a key role in your home loan application. In such a scenario, the lender declares the property as not suitable.
To conclude, getting approval of your home loan application in most cases is in your hands. Check your eligibility with our home loan eligibility calculator. A thorough analysis of all the above reasons can simplify your application process and get your loan approved swiftly and without any hurdles.