6 Factors That Could Lead to the Rejection of Your Home Loan Application

July 4, 2023
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When most people wish to buy a home, they often need a home loan to help in the purchase process, as they may not have all the funds at the time. But getting a home loan may be easier said than done, and there are no guarantees having a loan application granted. Regardless of whether you are looking at a 4 BHK apartment in North Bangalore or any other area, your application for a home loan could be rejected for a number of reasons – some of which we at L&T Realty have explored in this blog.

Red Alert: 6 Possible Reasons for a Home Loan Rejection!

1. Low Credit Score? Don’t Expect More
Having a good credit score is imperative to getting your loans approved by lenders, and a low credit score is one of the leading reasons for the rejection of home loan applications. It will essentially mark you down as a credit risk, heavily lowering the probability that a lender would approve your application for a home loan. A bad credit score may be due to a number of reasons, such as overborrowing from lenders, too many loan rejections, a less than optimal credit report, as well as a record of unsecured loans.

2. Debts Unclear? Reason to Fear
Another major reason for having a loan application rejected is if the applicant has any unpaid debts. This is because having unpaid debts in your name will also seriously affect your credit score, and this will therefore increase the chances of your application for a home loan to be rejected. Regardless of whether the debt is for a credit card repayment or for a previous loan, it is imperative that you clear any and all debts and unpaid dues in order to improve your credit score.

3. Unsteady Income? A Concerning Obstacle
Home loans will typically be repaid in the form of Equated Monthly Installments, or EMIs, which means that the individual who takes the loan will need to have a steady income of money on a regular basis. Therefore, lenders may be very hesitant to grant a loan for someone who does not receive a regular income, or a fixed salary on a monthly basis, as a loanee who does not have a steady flow of income might be capable of paying their monthly installments.

4. The Loanee’s Age? An Important Variable
One of the important factors that plays a role when it comes to an application for a home loan is the age of the applicant. If the applicant is at an age where they might be closer to retirement, then there will be less chance of them having their loan granted. This is clearly because the lender will have reasonable concerns with regard to the loanee’s capacity to repay the loan. This is mainly due to the fact that they cannot be sure that the loanee will have a steady flow of money for the foreseeable future, and will be hesitant to grant a substantial loan.

5. Loan-to-Income Ratio Unfavorable? A Problem on the Table
This is a factor that also takes into account all of your loans taken. All of these will have to be disclosed to the lender, no matter what kind of loans they may be. They must also be aware of your monthly income. They then add up all of these loans taken, including the home loan, and weigh it up against your monthly income. This is how they determine your loan-to-income ratio. If all your total loans taken is more than half of your monthly income, then your loan-to-income ratio is far too low, and they will most likely reject your application for a loan. Whether you are looking at a 2 BHK flat in Lalbaug Parel or any other locality, a low loan-to-income ratio could prove to be problematic in getting a home loan.

6. Discrepancy in Filing Tax? A Sign the Applicant is Lax
Filing your income tax for every financial year is of utmost importance, as your ability to file your taxes is a major factor in whether your application for a loan is approved or not. Showing a record of at least the last three years will demonstrate to the lender the existence of a steady flow of income, as well as proving your financial responsibility. This could go a long way in getting a home loan accepted.

While it may initially feel a little overwhelming to see the vast array of contributing factors which could lead to your application for a home loan being rejected, remember that home loan rejections do not actually occur as often as you might think. In fact, you will most probably have your application approved as long as you can stay responsible with your credit as well as your loan record. Whether you are looking at a 3 BHK in Seawoods Navi Mumbai or property in any other locality, it is important to keep the factors in mind when you are considering taking a home loan.

Disclaimer: Stock image used for representational purpose only.