For millions of people, buying a home of their own is one of their most cherished dreams. Most people will achieve this dream with the help of a home loan - which is one of the most significant financial commitments they will make in their life. Home loans generally involve a substantial loan amount and a long repayment period that could stretch into decades, but it also the means of owning a valuable asset and confers a sense of security. Here are some useful tips to keep in mind to maximise your chances of a successful home loan application!
What are the reasons my home loan application could be rejected?
There are three main reasons your loan application could be rejected.
1. Personal reasons: If the loan amount you are asking for is greater than what you can afford, lenders may be unwilling to take on the risk of default. Make sure that you choose a property that is not too expensive and that fits in with your income. Also if you have too many loans and EMI obligations, lenders might think that you will not be able to take on an additional loan repayment on your current income.
2. Credit reasons: If you have a poor credit history and credit score, lenders might not want to take the risk of lending to you. If your loan application has been rejected earlier (any kind of loan - whether home or auto or personal loan), banks will see that as a warning signal that other lenders have not found you to be a suitable for a loan and they may reject your application again. There could also be external credit –related reasons for rejection - for example, your co-applicant could have a bad credit score, or you might be guarantor of a loan that has been defaulted on.
3. Legal reasons: If there is any problem with the legal documents pertaining to the property, the banks will be unwilling to approve your loan application.
Steps to take to ensure successful home loan application
Lenders look at several factors when determining whether to approve of your housing loan application. Here are some steps you can take to avoid rejection of your home loan.
1.Maintain a good credit score: Typically, you need a minimum credit score of 750 for lenders to proceed with processing your application. A credit score of 750 or above reassures lenders that you are a responsible borrower and have a good track record of making repayments. If you have a score of less than 750, take time to improve your score before applying for a loan to avoid the possibility of rejection.
2.Ensure a healthy credit report:Once they know you have a good credit score, lenders look at your credit report. They check your payment history over the years to see if you have a record of making payments on time and in full over a long period. They also check for any written-off accounts in the past to see if you have defaulted on any prior debt obligations. All these indicators of poor credit behaviour are red flags for lenders, even if your current credit score is adequate. They will also look at your existing loan obligations to see if you can take on
additional debt payments on your present and predicted future salary. If you identify any weak areas in your report, work to rectify them before applying for a loan.
1. Demonstrate stable employment status and salary: Lenders want to be assured that you will have a steady monthly income to pay off your housing loan EMIs over the loan period. The tenure of a home loan can stretch for decades and lenders want to know if you have a high probability of steady employment and income during that period to enable you to make your loan repayments on time.
2. Ensure you have a clean title deed and complete documentation of the property: While this requirement is not related to your individual credit situation, banks want to ensure that there is no problem with the collateral (the home) in case you default on your loan. They will first make sure that all the legal documents relating to the property are in order.