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5 reasons your home loan application may be rejected

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Most of us are aware of some of the reasons why a bank may refuse to sanction a loan. The most tedious process of loan approval is followed for home loans.

You are likely to pep up your credit score, ensure you pay your credit card dues in full, on time, increase your income levels, close out previous loans, etc., in preparation for the loan you plan to apply for.

However, did you know that these are the not the only grounds on the basis of which your request may be turned down? There can be others for which you may not be directly responsible. Yet, you need to be aware of them to understand how you can tackle the issue and obtain a loan without any hassles.

The views in this article are based on standard underwriting principles as applicable in US, European and Indian markets, and not reflective on any particular institution in any country.

You are a job hopper who does not stay in a job for more than a few months
It is common practice with the current generation to switch jobs often. This in the bank’s book implies instability and will be a good reason to reject your loan request. Banks place a lot of importance on job stability and banks internationally often insist that an applicant needs to be employed with a particular concern for one to three years or more to be eligible for a home loan.

Tip: Remember, constant job shifts may affect your credit worthiness. Try to stick to a company for a minimum period of a year if you plan to apply for a loan, or shift post your loan sanction. Even this time period is only fine during the initial years of your career. As you gain experience it augurs well for you to have a longer stint at the companies you work for to account for job stability.

Your residential address is on the defaulter list
If you live under the same roof as someone who has slipped up on a loan payment or credit card dues and hence been reported to the national credit bureaus, then the probability of your loan application to be rejected is likely to be high. The reason being your residential address will find a match with the one on the defaulters list. This also holds true in the case of a family member who resides in the same address.

Tip: Take this issue up for discussion with your relationship manager at the bank. Indicate that the previous tenant (if that is the case) does not have a personal relationship with you. In the case of a family member you need to stress that he or she is not dependent on you.

Your profile doesn’t fit into the bank’s internal policy
Each bank globally is guided by its own internal policies. If some income or debt profiles or geographic areas are listed in their policy guidelines as not appropriate for lending, the bank will not be able to fund your loan.

Tip: In case your credit profile does not fulfill the criteria of your bank, you can take it up for discussion and provide additional security either in the form of a guarantor or in the form of insurance policies, fixed deposits, collateral securities etc., or provide proof of your repayment ability (for example, if you run your own business). If the property is outside the geographic limits specified by the bank, try applying to the nearest bank or branch. Also, check if the option of providing additional security is available.

You want a loan to purchase property in an old building
Some banks will not fund for old buildings, especially if it is more than 20-30 years old. This criteria (age of the building) varies from bank to bank.

Tip: Land value will always be considered while deciding on funding for older buildings. Try to increase the down payment and add in some form of security to negotiate for a lesser loan amount.

Your loan application has been rejected before
Most banks have records of all rejected loan applications in their database. When you apply with a bank, this will show up in your application verification checks and could pose a problem as it affects your loan worthiness.

Tip: Remember, it is not a wise thing to keep applying for a loan without any rhyme or reason. So weigh the pros and cons before you apply for a loan simultaneously to different banks. It would be best to wait till you know you cannot receive an offer before you apply to another bank. This will give you a chance to rectify errors or update your credit records in case there is an issue with it before you approach another lender. In the same vein, if the reason for your previous loan rejection is something other than a default, you can take it up with the bank explaining the exact reason for the rejection. In genuine instances, the bank could reconsider its decision.

Disclaimer: All information in this article has been provided by BankBazaar.com and NDTV Profit is not responsible for the accuracy and completeness of the same.

Story first published on: December 27, 2012 12:23 (IST)

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