Earning a five or six figure salary and even after maintaining a good credit score does not guarantee you an approved loan. After a long search, calculations and brainstorming, Pune-based Arun Khanna finally finalized his dream home in Pune and applied for a home loan. However, as Khanna was waiting for the approval he got the bad news that his application had been rejected. Mr. Khanna couldn’t believe it that his loan application can be rejected because apart from carrying a high-paid job, he had never defaulted on any other loans and even the housing project in which he has finalized the home was being developed by a reputed builder. So he was puzzled to understand that why his home loan application was rejected?
Well, there can be many reasons for a home loan application rejection – some known and some not so common or lesser known factors. Let’s take a look at few uncommon reasons that can troll your application towards rejection.
This is one of the known but unexpected reasons for the rejection of a home loan application. Few Banks/ NBFC’s restrict themselves from giving loans against the property to the builders. Therefore, it becomes critical for the builders to understand which Banks/ NBFC’s have approved them and which have not.
“There is a possibility that after approaching a Bank/ NBFC or a housing finance company to avail a home loan, you may come to know that your builder is not approved by it. In that case, you may not only get the biggest shock of your life, but it will also become impossible for you to get a home loan from the same bank and you might have to go to a different bank for the loan process,” says Akhil Jain, co-founder of Mudra Home, a trustworthy marketplace for financial retail lending products.
This is another unexpected reason for the rejection of a home loan application. A builder, for example, may stand well in a bank’s list of approved builders, but a particular project launched by him may not be approved by the same bank. Additionally, there can also be cases where a particular phase of a project (in case if it’s a large one) may not be approved by Bank/ NBFC. Therefore, to avoid such unexpected rejections of your home loan applications, it’s always important to check that apart from the developer, the entire developed project – that include its different phases- has also carry the necessary bank approval.
Imagine a scenario where someone is planning to buy a house from the resale market. The price of the property is mutually decided by both the buyer and the seller and the buyer decides to go for a home loan to fund the purchase.
“The Bank/ NBFC or the housing finance company would sanction your home loan on the basis of the current valuation of the property as calculated by the bank’s authorized valuation instead of the price decided by the buyer and the seller. If the amount of the valuation is higher than the price decided with mutual understanding of the property, then there will be no issue. However, if the property value is lower, then the Bank/ NBFC may choose to finalize on a lower loan amount than required, or may reject the home loan application,” informs Jain.
These days many housing finance companies (HFCs) blacklist both the defaulter and his residential address. Therefore, if you are staying in a house which falls in a defaulter’s list of the bank because of the previous tenant who had previously defaulted on a loan or with credit card payment, there are higher chances of the rejection of your home loan application. There may be a situation that a particular address is not in the defaulters’ list, but there is a possibility of the locality not being in the good books of the banks/HFCs due to some other reasons. Your loan application may also get rejected in such a case.
Many people do not check their credit scores before applying for the home loan and other financial product and are mostly oblivious to the same. Some time back, according to a survey done, almost 80% – 85% people were unaware of the credit bureaus and surprisingly among the others who knew 90% didn’t know about their credit scores. It’s not at all surprising that you may face a rejection of your loan application due to credit sore issues.
Do not be astonished if you come across with people who have a credit score of 700 and above (out of 900) are still denied of credit because of previous mistakes. As an example, there may be some old payments or missed charges which they have forgotten to pay, or they might have settled a credit card, personal loan or any other kind of a secured or unsecured loan long back. But this can carry a negative impact on one’s credit history for long time and this alone is enough to the rejection of a home loan. Therefore, it’s very important that the borrowers should regularly keep a check on their credit scores and fix issues, if any, due to their poor credit history immediately.
Job stability holds an important place in lender’s eyes and certain banks insists that the applicant should be employed with the same organization for atleast three years or more to be eligible for a home loan.
“Lenders are very particular about the stability of an applicant’s job. Before sanctioning a home loan or a loan against property, the lenders insist that the applicant should have a stable job and can also be a permanent employee in the company. If, due to any reason, these conditions don not meet, then one’s application for a home loan may get rejected,” says Akhil Jain, co-founder, a financial services advisory platform Mudrahome.
With the above points it is clear that there are many uncommon/ unexpected reasons that can take you towards the rejection of a home loan application, and one cannot be 100% sure of availing a loan even after earning a handsome salary of 5-6 figures or maintaining a good credit score. Mudrahome being a professional financial advisory for all kind of secured and unsecured loans. You can easily compare loans online on website.