Tuesday, November 8, 2016

10 Reasons For Home Loan Rejection That You Weren’t Aware Of

After toiling for several months, or perhaps years, you finally save enough money to make the down payment on your dream home. But what happens if you collect all the documents required for Home Loan, and painstakingly fill out the applications, only to find out that your Home Loan been rejected?

Insufficient income and poor credit scores are some of the common causes for loan rejection. There are plenty of other obstacles on your path to loan approval that you might not have even considered to be a hindrance. These factors are sometimes portrayed in a subtle manner on your application. Lenders review many factors before they actually consider approving your loan application.

Here’s a list of reasons that could lead to your Home Loan getting rejected:

1. An Incomplete Education

If you’re a school or a college dropout, getting a Home Loan can be quite a challenge. A minimum qualification of at least a bachelor’s degree assures lenders that the risk of you being unemployed is minimum. Undergraduates have a rare chance of getting their Home Loan sanctioned.

2. Insufficient Work Experience

You might have waited all your life to get that dream house. So once you take up a job with a decent salary, there is a good chance you’d like to apply for Home Loan almost immediately. However, most lenders look for a work experience of at least 3 years, and even if you earn enough money, your Home Loan will most probably be rejected.

3. Stature of your Company

If your company is a start-up or has been financially unstable, the chances of loan rejection are high.

Lenders may ask for financial reports of the organisation you work with. Based on this report they can identify the profit margin of your company and choose whether to approve or reject your application. Lenders can identify if a financial dip in your organisation will have adverse effects and have a negative impact on your loan payments.

4. Change of Career

Job stability is an important aspect lenders consider and financial institutions look for a minimum of 3-year work experience. So, if you’re in between jobs and don’t meet this requirement, your loan application is instantly declined. Being a permanent employee of an organisation and having worked with that particular firm for at least three years is an added benefit.

Even if you choose to quit your job and take up a self-employed venture, the risk of loan rejections prevails. You need to successfully run your firm for at least 3 years. Lenders look for an increasing profit for at least 2 out of the 3 years, to trust you with their loan.

5. Joint Family

While being a part of a large household with your parents, in-laws, siblings, their spouses and children, might make your family ties stronger, it can have an obstructive impact on your Home Loan. Lesser the number of dependents, higher are the chances of loan approval.

Being in a joint family may also lead to situations where you have to co-own properties—maybe a bigger home that you could all live together in. Lenders are particular about the number of co-owners. Most lenders allow only 3-4 co-owners. Some financial institutions may approve up to 8 members as co-owners.

Keep these factors in mind when you apply for Home Loan if you’re living with your extended family.

6. Unapproved Builder and Property

With so many homes and apartment complexes coming up in every city, you can easily get lured into buying a home from an unapproved builder. This not only gets your loan rejected, but you will have to head to a different bank for a loan and you may not be able to get the desired interest rates or benefits.

In rare cases, some builders are approved only by some banks. Finding the right bank can eliminate the risk of the dismissal of your Home Loan.

There are some cases where the builder might be a reputed one and approved by your bank but the project itself hasn’t received an approval. Another possibility is that if the project is enormous, one of the phases could not have been approved.

A quick check on the builder and the property goes a long way, as far as your Home Loan is concerned.

7. Actual Value of Property

If your dream home’s actual cost is lesser than what you’ve received an estimate for, the bank can, and will, reject the loan request. The rejection can occur on the grounds of inflation, where one may have given a greater valuation estimate in order to get a higher loan amount.

You can find banks that overlook this shortcoming and approve your loan with very low rates of interest. The risk of not getting a good deal on the loan, along with the risk of rejection, makes the precise valuation of property a key factor.

8. Age of the Property

Make sure you buy property that is being built with quality standards that will allow it to last for at least the next four decades. Banks and NBFCs are particular about the longevity of the property. 

Most of the policies state that the building should be able to last for a minimum of 20 additional years, once the tenure has been served. If you’re buying an old property, ensure the building meets the required standards before you consider purchasing it.

9. Backing Someone Else’s Property

You may want to do your friends a favour by signing up to be a guarantor for their Home Loan. But think twice before you do this. If you also plan on applying for a Home Loan, this might be a bad idea as it blocks your eligibility to take up a Home Loan by yourself. 

10. Bounced Cheques

Your cheque could bounce due to a signature mismatch or insufficient funds in your account. A signature mismatch can leave a negative impression on your lender’s mind. Insufficient funds only make matters worse as the financial institution might blatantly reject your application.

The fact that your cheque has bounced creates reliability issues at the lender’s end. They might deeply contemplate giving you a loan if you haven’t even maintained the small amount of processing fee required for your Home Loan.

Just having a good credit score and having a high-paying job, aren’t sufficient for a guaranteed loan approval, despite being two of the major factors to be considered when you apply for a loan. Factors like self-contribution amount, the listing of your locale and previous occupant of your property—apart from the aforesaid reasons—can also lead to the rejection of your Home Loan application.

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