Owning a home is a dream for many of us. A home is a big-ticket investment, which is difficult to own without a loan. As a home loan involves large amount and extends across a long tenure of 20-30 years, lenders do a thorough due diligence before approving loan applications. Lots of factors go into determining the approval of your home loan application. They can range from your income to your existing credit score to other loan commitments, documentation and other issues involved with the property being chosen.
Any loan application rejection comes as a big dash against your hopes, more so a rejection of the home loan. As owning a home is one of the highly ranked aspirations for many of us, it is common to feel dejected after a home loan is rejected
But all is not lost. We at Credit Mantri have always looked at being your credit coach, the one who can make credit accessible to you at all times. We bring to you certain pointers for you to get a home loan after being rejected once.
To begin with, it is important to understand why your earlier home loan application was rejected so that you can direct your remedial actions towards that reason in particular.
Evaluate Your Credit Score
Credit score is an important determinant of any loan approval or rejection. As we have brought it out in the paragraphs above, home loan is a big-ticket, long tenure commitment. Lenders want to make sure that they lend to individuals with credit scores of above 750 so that they can be assured of prompt repayment of the home loan EMI’s.
Very often, a poor credit score is the main reason behind a loan rejection.
Sometimes, individuals do not to check their credit scores before applying for a loan, thereby increasing chances of rejection. If you have missed checking your score before applying for a loan, do it now. Get your free credit report and get recommendations to improve your score, if need be.
Consider applying for a home loan afresh after credit score becomes green. Errors in the credit report may also be possible. These errors may be causing low credit scores. Take prompt action to get them rectified and soon you will see your credit score move higher.
So, going through your credit score and ensuring it is in favorable range before you reapply for a loan is a great starting point.
Additional Reading: Top 10 tips to improve your credit score
Lower Your Loan Amount
A home is often an investment for life. Therefore, you always want to pick the best one, at times offshooting your budget for the same. You may be fine with roughing it out or cutting down on your savings to buy that dream home, but lenders do not view it in the same light.
Every bank has their own lending policies in place which help them determine the ideal amount that could be lent for every loan application, taking into account your credit score, other loans, your income, etc.
The amount you pay as EMIs should not exceed 40% of your net income. Applying with a lower amount as loan so that the ensuing EMI will be well within the prescribed limit can increase chances of approval on your home loan.
Pay off Existing Loans
If you are already saddled with too many loans, a home loan will be a burden on your finances. It is good to look at your existing portfolio of loans and credit cards before reapplying for a home loan. If you are already servicing too many loans in proportion to your income, you are taking the risk of getting your application rejected.
Your income and existing loan EMIs play an important role here. The lender may have rejected your application on this basis. It is good to take some time and clear off existing loans with higher rates of interest before you apply for a high-ticket loan like a home loan.
A healthy credit portfolio is also a great requirement for a good credit score. A healthy credit portfolio is the one which has a balanced mix of secured loans like home or vehicle loan and unsecured borrowings like personal loans and credit cards.
So, it is good to have a look at your existing loans and cards and try to clear some loans before reapplying for a home loan afresh.
Consider Adding A Co-Applicant
If you have been rejected for a home loan for reasons like low credit score, higher loan amount or servicing too many loans, then adding a co-applicant may get your loan application through.
Adding a co-applicant to your loan application adds weight to your application. Combined income of the applicants will be considered, which will add a boost to your application. Hence, higher loan amounts should not be a problem.
The credit score of the co-applicant is also taken into account while sanctioning a loan. So, if your spouse has a better credit score, then that may bring in brownie points to your loan application. As per law, your spouse, parents or siblings (with certain exceptions) can be your co-applicants. So, if your earlier application was rejected, reapplying with a co-applicant may prove beneficial to you.
Additional Reading: How can joint home loans be beneficial to you?
Property Approval Issues
The property that you are looking to buy might have certain issues with regard to various approvals from authorities. All financial institutions carry out a scrutiny of these permits and approvals before sanctioning a loan. If there is anything amiss with the approvals, the loan can be rejected.
However, with the implementation of Real Estate (Regulation & Development) Act 2016, new projects are launched with RERA approvals which will reduce rejections from the lender’s end on this account.
So, if your earlier rejection was on account of property documentation or approval issues, we would advise you to make sure that that the property has clear title and all required approvals in place. After all, when you are making a huge investment for your home, you wouldn't like to be stuck with one that does not meet all legal criteria.
If you have missed out on submitting some papers during the first instance, then it is good to approach your lender and get the list of all documents, approvals, etc that need to go with your loan application. You can resubmit your application with all required applications so that it gets through.
Final Word
Home loan is a long-term commitment. As you take care to select the right home, one should also take care to ensure that you have a good credit score, right documentation, and income and other conditions met before you submit your application.
If your application gets rejected, it is not only a matter of dejection, it will also be counted as a hard inquiry which will affect your future chances of applying for a loan.