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Top Home loan Rejection Reasons and Solutions

Updated: May 31, 2022
Top Home loan Rejection Reasons and Solutions

Do you know, despite being an easier mode of financing option for your home buy, your lender can reject your home loan application at any stage? And, the home loan rejection reasons can be as basic as not meeting home loan eligibility criteria to property breaching guidelines prescribed by relevant authorities.

In this blog article, we will discuss the top home loan rejection reasons and how to avoid them to increase the chances of home loan approval.

Top Home Loan Rejection Reasons

The following are some of the top reasons for rejection of loan applications.

1. Poor credit score:

Lenders prefer advancing loans to users with a credit score of more than 700, as it indicates their high creditworthiness and the risk of default is low.

If your credit score is below 700, then before applying for a home loan, take steps to improve your credit score to improve your home loan approval chances and be able to negotiate better terms on the home loan.

2. Borrower age during the time of application:

A home loan is usually a long term loan with repayment tenures going upto 30 years. If you are applying for a home close to your retirement, the chances are high, the lender will reject the home loan application compared to a person applying for a home loan in their 20s or 30s.

If you're applying for a home loan closer to your retirement, a higher down payment and providing additional guarantees (like a younger co-applicant who fits the eligibility criteria) may help to secure the loan.

3. Incomplete documentation:

Accurate documentation is very important in the home loan approval process. Failure to provide even a single document can impact the home loan approval process. Therefore, while applying for a home loan, you must provide all the documents asked by the lender and avoid providing any false information or documents.

4. Unstable employment:

Lenders prefer borrowers with stable income sources and are employed in a reputed organization for a minimum of continuous three years. It helps the lender to determine the borrower’s repayment capability and whether can pay off the loan within the stipulated time.

Frequent job-hopping affects home loan eligibility and creates a sense of uncertainty about your repayment capability in the lender’s mind.

5. High debt to income ratio:

If you have a higher debt to income ratio, meaning, a large part of income is utilized is servicing existing loans, then the lender can reject your home loan application. Higher debt-to-income indicates your higher dependence on debt to meet most of your needs.

Therefore, before applying for a home loan, ensure you have a low debt to income ratio, and after considering the home loan EMIs, it should not cross 50% of your income.

6. Unapproved property:

A home loan application is not just affected by your failure to meet eligibility. If there are issues with the property, the lender can reject the home loan application. For example, if the property is unapproved, or the building is not as per the guidelines prescribed by the local authorities, or the builder has a history of associating in malpractices, the chances are high, your home loan application will be rejected.

Therefore, before selecting a house property, check every aspect of the property, make sure the property is free from legal hurdles, and it meets all guidelines of the local authority. Furthermore, check the reputation of the lender in the market.

7. Loan application rejected previously:

If any of your loan applications, not just a home loan application, is rejected recently due to your lack of creditworthiness or low income, the chances are high your home loan application will be rejected this time also.

You should apply for a new home loan application after a minimum of six months after your previous loan rejection, or not until you have repaired your credit report. Because, if your loan application is rejected once more, then it will be extremely difficult to get one for a very long period.

8. Serving as a guarantor to a defaulter:

If you are serving as a guarantor to a loan defaulter, the lender will not approve the home loan application until you repay the outstanding loan of the defaulter and get your name cleared.

Therefore, before signing up as a guarantor, know the credit behavior of the person and the chances of default are least. In case of default by the borrower, your credit score also gets impacted.

Bottom Line

It's not just the eligibility criteria that impact your home loan application, but other external factors can lead to the rejection of a home loan application.

Therefore, apart from ensuring that you fulfill all the eligibility criteria mentioned by the lender, you need to check that the property meets the lender’s expectations and ticks all boxes. A way to ensure a smooth home buying experience.

Must Read : How much time does it take for a home loan to get approved?

Disclaimer: *Please note that this article is for your knowledge only. Loans are disbursed at the sole discretion of SMFG Grihashakti. Final approval, loan terms, disbursal process, foreclosure charges and foreclosure process will be subject to SMFG Grihashakti’s policy at the time of loan application. If you wish to know more about our products and services, please contact us.

SMFG India Home Finance Co. Ltd. (Formerly Fullerton India Home Finance Co. Ltd.)
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