Top 5 Reasons for Home Loan Application Rejection: When you apply for a home loan, the two primary checks the lenders make are the credit score and history and your income. If either of these doesn’t meet the lender’s minimum requirements, then the loan application will not move forward.
Apart from this, lenders will also look for steady employment and income records. Factors such as age, nationality, and even educational qualification could also have an implication on loan approval. Inaccuracies in your application, especially in name, age, address, etc., makes it difficult for the bank to generate the necessary information about you and can lead to the application being rejected.
Here are some other factors that could cause your home loan application to get rejected.
1. Age and remaining years of service
The home loan eligibility is directly related to the loan tenor. “If you are younger, you have a longer time to repay your loan. So you can have a loan with a longer tenor and lower EMI. However, if you are older and due for retirement soon, then you will get the loan for a much shorter tenor as the loan needs to close before your retirement. If the resultant EMI is higher than what is acceptable to the lender, then your loan application may be rejected,” says Adhil Shetty, CEO, BankBazaar.
2. Low valuation of property
Banks typically offer up to 85% of the property value as loan. Irrespective of the market price, banks undertake their own property valuation, which takes several factors into account such as the age of the building, and the condition and quality of construction, the location of the property, etc. So, even if you are eligible for a higher loan amount based on your income, the bank may downsize or reject your loan if it finds that the property has a lower valuation.
3. Unapproved property or builder
The lenders check if the property is approved by the local bodies. If it fails to adhere to certain guidelines as prescribed by local authorities, the lender may reject the loan. Similarly, the builders are also well scrutinized by banks before financing their projects. If you opt for a property by a builder not approved or blacklisted by the bank, chances of getting a home loan approved are slim even if the property has been approved.
4. Age of the property
When you take a home loan, your property is held as collateral by the bank. “If the property is very old, the lenders may also conduct an investigation to evaluate the probability of structural collapse in addition to their usual legal & technical investigations. In certain cases, the condition of the property or the government norms surrounding old property may not allow the sanction of a loan against it,” says Shetty.
5. Unstable employment
Usually, banks and non-banking financial companies (NBFCs) consider stable employment as one of the top parameters to ascertain the borrower’s ability to make timely repayments. Some lenders also insist that the borrower be employed with the same company for a period of at least three or more years to be found eligible for taking a loan. People with low work experience, contractual jobs, or those changing employers frequently, are at a higher risk of facing home loan rejection.