The mortgage is one of the most practical credit facilities to finance a real estate purchase. Despite the simplicity of the process for eligible applicants, home loan applicants should still exercise caution when applying for a loan. Profile verification is an essential aspect of this procedure in which lenders perform several checks on applicants to determine their creditworthiness before approving. If for some unfortunate reason they are not convinced of a single aspect of your profile or question the validity of your claims, obtaining a home loan may prove more difficult for you.
To avoid scenarios that lead to home loan denials or poor loan terms, we suggest that you research your options and optimize your loan eligibility and financial situation before proceeding with your home loan application. This not only helps you earn more in terms of a home loan, but also helps you avoid a negative impact on your credit profile.
Keeping in mind how valuable it is to get a home loan at competitive rates, we detail some of the biggest causes of home loan denials, so you know better.
Main reasons for rejection of a home loan
For the benefit of our readers and aspiring home borrowers, here is a list of common reasons lenders cite when rejecting home loan applications that don’t measure up. Keep reading to learn more.
Bad credit score
Your credit score is indicative of your credit history and repayment habits, as it records all timely payments made for your debts and other financial responsibilities.
If you have a low credit rating, lenders are likely to reject your home loan application because it may be misread with regards to your creditworthiness. Generally, lenders are happy to give favorable home loan terms to applicants with a CIBIL score of 750 and above.
Job Profile and Earnings
Considering that a home loan is a significant loan sanction that equates to a significant financial commitment, your income stability, employment profile and future employment prospects are closely monitored as they have a direct implication on your ability reimbursement.
Lenders are keen to offer home loan interest rate on sums as high as Rs. 5 Crore to salaried, professional and self-employed applicants, provided they fulfill their eligibility mandate.
The parameters that lenders mainly take into account when evaluating your employment and income are, among others, your work experience, the nature of your work, your employment profile and your active and passive income.
Previous loan rejections
If your previous loan applications have been rejected, it could jeopardize your chances of getting a good home loan and often lead to a new rejection. While an earlier loan denial isn’t a nail in the coffin, it’s an important red flag for lenders who want to see what corrective action you’ve taken since then and proof of compliance. improving your loan eligibility.
Properties in red areas
Financial institutions may maintain a list of “red zones” in which they do not encourage the purchase of a home. This may include specific locations, such as underdeveloped localities or areas that have seen an increase in unauthorized construction. Lenders prefer to finance new homes and may be hesitant to finance your purchase if it is a resale property with a reduced value, even if it is in a prime location.
Applicants are strongly advised to gather the list of documents required for the home loan well in advance to avoid any last minute confusion. It also gives you enough time to arrange the availability of the document if you don’t already have it. Lenders are unlikely to accept your application if they find incomplete or false information in the form or if there are missing or incorrect documents.
Property title and value
Lenders avoid properties that are embroiled in legal or financial disputes and hold minor rights or unclear title deeds. Also, if they find that the value of the property is much lower than the actual sale price, they might not look favorably on your request.
It’s easy to get home financing for projects led by reputable builders or those on the lender’s list of approved builders. But if your builder isn’t on the list or has a bad reputation in the market, you could be facing a home loan denial.
A home loan may be your only way to realize your dream of owning a home for your family. Keeping its importance in mind, it is prudent that you do all you can to improve your chances of getting instant approval and keep all slander regarding your loan application at bay.
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