Purchasing a house could be one of the most important financial decisions of your life. After all, the investment is huge and it takes a lot of commitment, research and decision-making efforts to first find the perfect place and then arrange finances for it. While taking a home loan is a convenient way to finance your dream home, it can be disheartening to see your loan application rejected.
You can increase the chances of getting your loan approved simply by having an understanding of the major reasons for home loan rejection. Here is a ready reckoner for you:
Poor credit score
Your CIBIL score is a reflection of your repayment capacity or creditworthiness. Therefore, it is most likely the lender would reject your home loan application if you have a poor credit score. A credit score is the numerical representation of your creditworthiness. Credit score ranges between 300 and 900. The higher the credit score, the better. While a score of 650 and above is good enough for a home loan in general, a number closer to 900 increases the chances of your application meeting the eligibility criteria of banks. If you have a low credit score, it is recommended that you work on improving the score before applying for a home loan. If you are badly needed for a home loan and you had a bad credit score, you can check usda loan eligibility. Although the USDA does not specify a minimum credit score, most lenders demand a score of at least 640, which is the minimum required for automatic approval.
Unstable career
Job stability is an important eligibility criteria for loan approval. If you have recently switched jobs, or have no job currently, it can adversely affect your loan application approval. Lenders prefer applicants with a stable employment record. If you switch jobs too often or your company’s finances are unstable, lenders can reject your loan application.
Incomplete documentation
Lenders gather most of your details from the documents you provide. Which is why your home loan can get rejected if the documents you submit are incomplete or if they contain false or misleading information. Another reason for rejection could be signature mismatch in different documents having your signature.
History of loan rejections
If your loan application was rejected in the recent past, it could be a reason for your current home loan rejection. Several loan rejections in the past can create doubt on your financial credibility. Therefore, you should avoid applying to several banks for your home loan at the same time. Making too many loan applications or inquiries also has a negative impact on your credit score.
Existing loans
Experts believe that having existing loans or large outstanding credit card dues can reduce your repayment capacity. The presence of other debt means more EMIs to pay which puts uncertainty on your repayment capability. Similarly, having unpaid dues on your past debts is a big no-no for your home loan application. Lenders do a background check to see if you have defaulted on any EMI payments in the past. To increase the chances of loan approval in the future, it is a good practice to maintain good financial hygiene, including a habit of paying all your EMIs on time.
Not fulfilling eligibility
Lenders have specific and strict eligibility criteria that you need to fulfil to get your loan approved. If you fail to fulfil even any one of them, the lenders could reject your loan application. For example, if your age is close to retirement, your loan application can get rejected as it reduces your earning and hence repayment capability in the near future. Therefore, before applying, check the lender’s website and ensure that you fulfill their eligibility criteria.
Getting your loan rejected after you have completed all the formalities can be frustrating. More so when you are eagerly waiting to purchase your dream home. The above-mentioned steps would help you avoid mistakes that can lead to home loan rejection and ensure that your loan application is approved without any unnecessary hassle and obstruction.