9 Reasons Why Home Loan Applications Get Rejected

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9 Reasons Why Home Loan Applications Get Rejected

Numerous people have had their home loan applications declined for one reason or the other. It is important to note that you are not alone. Some rejections are nothing more than a simple technicality issue that can be resolved by providing additional information. Another reason why home loan applications get rejected at times is that some lenders increase their requirements to qualify for a loan which makes it progressively harder to get approval.

However, it is rare for your application to get declined without any reason. Are you thinking that you’ve gotten to the end of your home loan application journey? This article will show you the reasons why your housing loan applications get rejected, as well as the documents required for a home loan and home loan eligibility. Read on.

Here Are the Reasons for Home Loan Application Rejection

Below are some common reasons why home loan applications get rejected.

Insufficient Down Payment Amount

Your lender will review all the loan policies and state how much you need to pay upfront. However, if you are unable to come up with the funds, there are chances that your application may be rejected.

As a rule of thumb, assume you will need to finance around 20% of the property value yourself, as lenders restrict the loan to value ratio (LTV) to about 80–85%. To accumulate these funds, you can of course use your savings or organize funds from your relatives and list them as a gift. To ensure that your loan application is not rejected, ensure you have the funds for down payment in hand before you contact your lender and go ahead with the process.

Incomplete Documentation

Housing loans require significant paperwork, such as proof of identification, income, and residence, along with property papers, documents authorised by relevant authorities, and so on. Even if one of the necessary documents is missing, your loan lender has the right to refuse your application. It’s expedient to make sure all your documents are valid and included when applying for a home loan.

Lack of a Stable Income Source

If your income is not enough or you don’t have a stable source of income, your housing loan application is likely to be rejected. Make sure you have a stable source of income, which you can prove before you apply. Take note that other than your regular income, such as your salary or profits from your business, you can also show income from other sources, such as rent from another property or investment returns.

Low CIBIL Score

If your CIBIL score doesn’t meet the lender’s eligibility criteria, your application may get rejected. Most lenders look for a score higher than 750, as it reflects a strong repayment history, thereby reducing their risk. A high score of 750 and above not only increases your chances of approval but also improves your chances of being offered a more competitive interest rate. Note that while lenders prefer such scores, they also consider scores of 700–750, depending on other eligibility criteria.
Suitable Property as Security

The property in question also plays a role in the approval of your application. Although most lenders finance all properties, there are some criteria that are always checked. As a rule of thumb, lenders are happy to extend loans for properties with a good location, reliable developers, and plenty of amenities that promise a high resale value.

No Government Approval

If your property is not approved by government officials, you may get a rejection on your home loan application. Be sure your properties are approved by the government before you avail yourself of a home loan.

Income Tax Return Filing

It is important to file your income tax every financial year, whether or not you receive your Form-16 from your employer. Lenders and banks check for a clear track record of filing income tax returns of the last two years, before approving a home loan.

Home Loan Eligibility Criteria

There are certain eligibility requirements you must meet if you are applying for a housing loan. The basic requirements you need to apply for a home loan in India, irrespective of the bank/HFC, are as follow:

Nationality: Indian Residents, Non-Indian Residents (NRIs), and Persons of Indian Origin (PIOs)
Credit Score: 750 or above, ideally
Age Limit: 23–25 years old minimum and 60–70 years old maximum
Work Experience: You must have at least 3 years of work experience
Business Continuity: You must have at least 5 years of business continuity.
Minimum Salary: You must be earning at least Rs.25,000 per month (varies across      lenders and locations)
Loan-to-Value (LTV) Ratio: Your LTV cannot exceed 80–90% of the property’s value

Documents Required to Get a Home Loan Approved

To get your home loan application approved, there are certain essential document requirements for a home loan that needs to be duly fulfilled. The main documents required are:

Valid Address Proof: Voter Card, Ration Card, Aadhaar Card, Driving License, etc.
Age Proof: Voter Card, Ration Card, Aadhaar Card, Driving License, etc.
Residence Proof: Utility bills, tax receipts, etc.
Income Proof: Salary slips/P&L statements, bank statements, etc.
Property Related Documents: Title Deed, etc.

Final Thoughts

Now that you have the requisite information on what might have been stopping you from getting your housing loan approved.

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