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Your Home Loan Can Be Rejected On These Five Grounds

Buying one’s own house is many people’s dream. After all, buying a house is perhaps the costliest and therefore, the most important decision one can make in his/her life. There will or probably has come a time when you tried to turn that dream into reality. You scouted for a nice home, found one and then thought of buying it. If you had the money to spare for it, welcome to your new life. However, many others, including us, have to go a different route. This route pertains to us securing a loan for buying our dream home. And also the chance of home loan rejection.

Home Loan Rejection

While many succeed in securing a loan to buy their home, many others don’t. At various stages of loan approval, their application gets rejected. A number of times it happens because of incomplete submission of documents. Such people not only are unable to secure their dream home, they watch someone else buying that same house.Therefore, before you go apply for a home loan, you should know about the grounds on which the bank can reject your home loan application. We have listed some of the major reasons for rejection of home loan applications here. Do give them a look:

Home Loan Rejection Reason 1 – Age and Eligibility

When you are applying for a home loan, you are asking the bank to loan you a huge sum. So, at the very least, it will pose a few requirements to determine whether you can get a home loan or not. Banks favour working people to retired ones. This is because a working individual has a regular source of income. Hence, his/her chances of defaulting on the loan are low. A retired individual may be asked for additional proofs of income before the loan is sanctioned. Similarly, banks prefer younger individuals to elder ones, simply because they work for more years than their elderly counterparts.

Home Loan Rejection Reason 2 – Employment Stability

Another important criterion for banks to reject your home loan application is employment stability. If you have been jumping from one job to another, the chances of bank rejecting your loan application are high. Why? Then answer this – how will you be able to repay the loan if in every few months, you have to look for a new job? If you have an answer for that question along with a proof, the bank may still loan you money. Also, there are certain jobs where people are required to operate in a war zone or a hazardous area. Banks can refuse from giving loans to such people simply because these people operate with an inherent risk to their life. Thus, if something happens, they may not be able to repay their loan.

Home Loan Rejection Reason 3 – Buying property from a defaulter

There are certain people who do not repay their loans. The banks refer to such people as defaulters. When certain people are not able to pay their loan, which they secured to buy a property, the bank treats the individual as a defaulter. Additionally, it blacklists the property. Now, if you have set your eyes on such a property, the bank will reject your home loan application. So, before applying for a home loan, do some due dilligence about the property you wish to buy. This will save you quite a bit of effort later on, not to mention the disappointment caused by rejection of your loan application.

Home Loan Rejection Reason 4 – Property Valuation

Many people do not invest in new properties and instead consider investing in built-up properties. For such people, this point is quite relevant. Why? When they sit down to decide on a price for the property, few care about something called property valuation. Due to this, many end up paying a higher amount of money than the property will be valued at. In case you purchase the property without securing a loan from bank, the deal closes with ease. However, when people do not get the property valuation done and instead approach the bank for a loan, the bank carries out its own valuation. If it deems the property to be overvalued, the bank rejects your loan application. Hence, property valuation is quite important.

Home Loan Rejection Reason 5 – Unapproved builder and/or project

There are a number of builders who are stuck in one legal trouble or another. Banks keep a record of such builders and if you approach the bank for a loan to invest in such a builder’s project, it will be rejected. However, many times, even the housing projects run into legal troubles. If you try to secure loan for such a project, the bank will trash your loan application.

Apart from these, there are a few more reasons why a bank can reject your home loan application. Below are those reasons:

  • Poor Credit Score – An agency called CIBIL maintains a credit scorecard of all individuals. Banks and lending institutions often rely on this agency’s scorecard to determine whether to forward loan to a particular individual or not. The better your score, higher the chances of your application getting a go-ahead. Paying your credit card bill on time and paying for all your previous loans on time keeps your credit score in the green.
  • Loan for an old building – This is the case for those looking at resale properties. While the criteria under this head varies from bank to bank, generally banks do not favour loaning money for buying property in an old building. There is a question mark over an old building’s lifespan and the bank prefers to refrain from risking its money in such investments. The bank may still approve your loan application if you pay a larger sum as down payment, but we would advise you to not bank on such chances.

So, these are some of the reasons why a bank can reject your home loan application. The next time that you approach a bank with a home loan request, do ensure you cover these points. These will not just help you get a home loan but also expedite the process.

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About the Author: Praveen Unnikrishnan

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