Even though they entice you with big promises of quick disbursement and assurance of hassle-free processing of home loans, banks do several checks on you before approving your home loan application. Out of these checks, if they find a good reason that makes the borrower a risky bet, they will reject your home loan application. In this blog, we list down 20 reasons – some known and some not commonly known – on the basis of which a lender can reject your home loan application.
- Bad Credit Score
We are all different and deal with money differently. Any slip made along the way, however, will find a mention in your credit history, which is compiled by credit bureaus in India. As a first step while processing the loan application, the bank will get you the CIBIL report from the credit bureaus. In case of a low score – a credit score is assigned to borrowers in India by credit bureaus, on a scale of 300 to 900, depending on the latter’s banking/payment history – the bank will reject your application.
Currently, banks pay a lot of attention to this aspect. For example, lenders like Axis Bank charge lower interest on home loans from borrowers with impressive credit scores.
- Frequent job changes
In your opinion, it should definitely be none of their business, as long as you have a stable job and have the ability to repay. If anyone should really care about it, it should be your employer. However, financial institutions also give adverse attention to the fact that you have been changing jobs frequently. This assumption is based on the assumption that you may lack commitment and stability which acts as a pre-requisite to meet a long-term obligation like a home loan.
- Nature of work
Unlike salaried class borrowers, self-employed people find it difficult to secure a home loan, especially if they are small business owners. Self-employed borrowers do not instill as much confidence among bank executives as the salaried ones do, as the latter enjoys a certain level of job security and stable income. For the self-employed to secure a home loan, before approaching the bank, the borrower must have good paperwork. If the bank finds any discrepancies with respect to your income, business, or income tax filing, they will not waste much time in rejecting your application.
- Job Type
Banks also refrain from extending loans to salaried employees working in certain sectors, as there are potential risks involved in lending to this category. People working in police departments, for example, may not find banks as forthcoming to give them loans. The same goes for lawyers and journalists. Such borrowers may have to provide a guarantor for their home loan to secure the loan. Banks also keep a list of companies they have placed restrictions on funding. If the builder is on this list, you may have to look for another lender.
- Address related issues
While preparing the list of their defaulters, banks can blacklist not only the applicant but also his/her address. This means that you may face the consequences of being a tenant of a house whose owner has found mention in the bank’s list of defaulters through no fault of yours.
- Previous Rejection
A bank will know that your home loan application has been rejected by another lender as soon as it accesses your CIBIL report. Apart from the fact that you have faced rejection, the credit report will also mention the reasons on which the bank decided to reject your request for a home loan. This gives the lender a reason to be concerned and imposes higher checks on such a borrower.
- Properties in ‘Red Zone’
Banks usually have a list of areas, which are classified as red zones, where they do not finance home purchases, as they consider these locations to be risky propositions.
There are only specific locations and specific properties for which financial institutions usually lend housing finance. For example, in Delhi, a buyer who is buying a property in the Lal Dora area will have to rely solely on their own resources to make the purchase, as most of the lenders will not offer home loans in any area. This rule applies to most of the undeveloped areas or areas which have seen a rise in unauthorized constructions in the last two to three decades.
There are also some assets for which banks do not give loans. While they would be willing to lend money for an under-construction project, banks may shy away from lending if the property is old and dilapidated.
- Encumbrance on property
Even in areas that do not fall under the Red Zone list, a bank will stop financing the purchase of a property if there are any questions on the title documents. During its legal appraisal exercise, the bank will establish whether the seller is legally authorized to transact the transaction while keeping an eye on the veracity of the property documents. Banks will never finance an asset that is involved in any kind of legal or financial battle.
- Highly Valuable Assets
Banks send technical experts to visit the property and after thorough inspection determines its market value with respect to its physical condition, location, etc. If the team makes the bank aware of the fact that the sale is taking place at a rate much higher than its actual value in the market, the bank will reject your home loan application, as they have to maintain the loan-to-value ratio. They will not lend you, say, Rs 50 lakh to buy a property which, in their assessment, does not exceed Rs 40 lakh. Since they generally maintain a loan to value ratio of 80%, they will offer only 80% out of Rs 40 lakh as a loan and nothing more.
- Credibility of the builder
There will be no difficulty in finding lenders for housing projects of reputed builders. However, it can be equally difficult to find a lender who will lend money to buy a project with a builder who has been accused of dubious transactions in the past.