Was your home loan rejected recently? If your answer is “yes”, then you needn’t fret. It’s not uncommon for banks and NBFCs to reject home loans because these loans are usually big-ticket loans with an amount ranging from Rs. 30 lakhs to a few crores. The term length is also quite long (20-30 years) which is why the risk is quite high on the lender’s end.
The following are some of the most common reasons why home loans are rejected:
- Low CIBIL Score
Your credit score holds the highest significance compared to other factors in loan assessment. So, even if you have a good credit history and a stable income, if your score isn’t up to the mark, your loan application can be rejected.
The CIBIL score ranges from 300-900 and a score equal to or above 750 is considered “good”. So, if your score is below this, then you must work to bring improvement. You can start with going through your credit report which you can get for free once every year as per the RBI’s norms.
- Insufficient Income
As mentioned earlier, home loans are tricky. You have to repay your HDFC home loan, SBI home loan, etc. for at least 2 decades. Thus, the banks want to ensure that you have a sufficiently high income to give you the capacity to repay the loan throughout the term without fail.
If you are already repaying a loan or two, then the bank will take that into consideration as well. This is because some portion of your income will be spent on the repayment of that loan, thus leaving you with a smaller amount for the new loan.
- The Age Factor
Your options for loans, especially the home loans reduce drastically once you hit half-century i.e. age of 50 years. This is because home loans usually have a term of 30 years. So, if someone takes a home loan when they are 55, then they will pay the last installment when they are 85. Naturally, the bank will be worried whether the borrower will be actually able to repay the loan successfully because of two reasons:
- Most professionals retire by the time they are 60 to 70 years old. Thus, they may lose their income entirely or at least partially (if they are getting a pension).
- As the borrower becomes older, their health deteriorates at a faster pace. Thus, their medical expenses may increase and put a financial burden on their shoulders which may come in the way of loan repayment.
Banks like to offer home loans to young professionals who they know will continue to have their salary increased during the loan term. On the other hand, older applicants can often find their loan application rejected.
- Credit Report Discrepancies
It’s true that the banks check credit reports to ascertain whether the applicant has a high or low CIBIL score. However, they also check these to verify their personal and financial details.
The credit report contains all the important details of a person including their name, address, income status, bank accounts, repayment history, existing loans, etc. So, the bank can match this information with the documents provided by you. If there are any discrepancies, then they may reject your application. This is often done to prevent a possible financial fraud or scam.
- Untrusted Builder
Most banks have their own database of builders that they trust. So, if you are seeking a home loan for a property that’s sold by an unknown builder, then the bank may reject your application. This is common to all kinds of loans whether we talk about HDFC home loan or ICICI home loan.
It’s not uncommon in India for unscrupulous builders to collect money from their customers only to vanish later. Thus, banks are cautious against builders that they don’t recognize or trust and refuse to sanction loans taken for real estate sold by them.
So, these were some of the most common reasons behind home loan rejections. If you have identified the problem in your case, then you can take appropriate action to rectify the same and reapply. You can also take help from a credit professional who can coach you until you finally get the loan you want. Good luck!
