10 Reasons Why a Housing Loan Application may be Rejected

A house is one of life’s most valued possessions and purchasing one figures prominently on the list of most individuals. While Home Loans offer a convenient financial solution for one’s housing needs, it requires judicious planning and despite one’s best efforts, your Home Loan application may still be denied. To overcome such a situation, it is better to be aware of the different factors that could lead to Home Loan application rejection so that you can take adequate remedial measures, if necessary.  

Ten Most Common Reasons for Rejection of a Home Loan

Home Loan denials can happen for any of the ten most common reasons mentioned below:

1. Low Credit Score or Errors in Credit Records

Your credit score plays a significant part in whether or not your housing loan application receives approval. Credit scores or CIBIL scores are an indicator of one’s creditworthiness. Hence, in case of a low credit score, lending institutions are likely to turn down your loan request as this implies your inability to handle the loan efficiently and pay the EMIs on time.

Another crucial aspect that can affect your application is the credit report itself. If your records contain any mistakes or incorrect information, it may be sufficient reason for loan dismissal. So, monitor your credit report regularly and rectify inconsistencies that can harm your loan prospects.

Additional Read: What is a Good CIBIL Score for a Home Loan 

2. Age of the Borrower

The age of an aspiring borrower determines his/her ability to service a loan. Lenders normally prefer lending to individuals with a wider career scope ahead who can repay their loans easily. On the other hand, applicants inching towards retirement have fewer working years. This may make it tougher for them to repay the EMIs comfortably, thereby, leading to the rejection of their loan application letter.

3. Frequent Job Changes

Everyone switches jobs for better career opportunities. Nevertheless, if you wish to take up a house loan, try not to jump companies within a short span of time. Doing so makes lenders question your reliability and sense of responsibility due to which they may dismiss your loan request. 

4. Unfavourable Employer Profile 

Even if you have an excellent credit score and all your supporting documentation is in order, lenders may be wary of granting you a loan; if they are not comfortable with the profile of your employer/company or the profession/type of business that you are associated with.  

5. Incomplete Documentation

The paperwork you furnish along with your application is the most critical part of the Home Loan process. It lets lenders assess your personal and professional profile before they consent to sanction a house loan. Any discrepancies or missing documents can impede your application. Therefore, check the list of required documents and arrange them well in advance. 

Additional Read: Checklist of Documents Required for Home Loan 

6. Unauthorised Property or Developer

Apart from your ability to manage the Home Loan, lenders will also validate the property that you seek to purchase with the loan. Lenders may be reluctant to extend a loan if the house is too old or if it does not have proper sanctions and permits from concerned authorities. It can also be an issue if either the building project or the builder/developer is blacklisted. These checks and measures safeguard against potential pitfalls and mitigate the financial risks for both the lender and the borrower.  

7. Discrepancies During Verification

Lenders undertake stringent verification of the documents received from loan applicants. If there is a mismatch in signatures, addresses, phone numbers or other details provided in the application form; lenders will consider these as probable red flags.

8. Ongoing Debts and Financial Commitments

A high level of debt is usually one of the common reasons for loan rejection. In case, an applicant has existing loans, financial commitments or pending dues; they may not have enough funds left to service another loan. Thus, lenders will show reluctance in granting approvals since this can further increase an applicant’s quantum of debts.

9. “No Dues” Certification

If the seller of the property that you wish to buy had previously secured a Home Loan for its purchase, s/he has to obtain a “No Dues Certificate” from the lender upon full repayment of the loan. Failure to present this document can be a stumbling block.

Additional Read: Importance of NOC Letter after Paying off Your Home Loan 

10. Problems as Loan Guarantor

Whenever you sign as a Home Loan guarantor for relatives, friends or family members, ensure that the main borrower has an excellent repayment record and can handle the loan effectively. Despite possessing an impeccable credit profile, you might face problems if the primary borrower delays or defaults on his/her EMI payments. This can leave an adverse and permanent imprint on your credit score and reflect poorly on your loan application.  

The Final Word

Thorough research is vital to obtaining the best housing loan deal. The pointers enumerated above are guaranteed to help you avoid Home Loan rejection. Along with these, one should also check their preferred lender’s eligibility criteria for Home Loans which could vary among lending institutions. Once you meet their requirements, it will be easy to gain loan approvals without unnecessary worries regarding Home Loan rejection and have a smooth sailing Home Loan experience.