Buying a home is a dream of everyone in this world. Due to rising property prices, it has turned out to be nearly an unfeasible task for an average earning individual. But this task became possible with easy availability of housing loan. There are several housing finance companies and banks to offer loan these days.

Now-a-days, bank’s marketing department for various products such as bank FD, personal loans, home loans, credit cards etc. Sometimes, they say that you have a pre-approved home loan or personal loan waiting for you and no documentation is required. For a common person, this is attractive and he/she feels that taking home loan has now become very easy for him/her. But actually when the person goes to bank and applies for the loan his application gets rejected. We will discuss what are the various reasons due to which home loan gets rejected.

Personal profile

The personal profile of an individual is one of the most important factors for loan approval. This includes factors like educational qualification, profession, number of dependents, assets owned, liabilities, savings history; insurance policies etc. A higher number of dependent or existing liabilities imply lower repayment capacity.

Title deeds and NOC Documentation

The cleared title deeds and NOC documents have to be furnished in the bank’s prescribed format. Borrower, who doesn’t provide such documents in proper format, will ruin the entire exercise and won’t get the home loan.

Credit history

These days credit history of the borrower also plays an important role. Credit history is nothing but your financial report card which banks refer to while approving any kind of loan. It takes into consideration your all previous outstanding payments to any institutions. If you have any delayed payment for credit card, personal loan etc it can make your credit history poor. With the advent of credit information companies (CIBIL), the banks and financial institutions have now better access to credit worthiness of a loan applicant.

Age of Person

Age of person is also one of reason for rejection of home loan application. Bank always check the age of applicant who is applying for home loan. If the applicant is near the retirement age, bank can only offer short term loan. This translates into high EMI that could be unaffordable looking at the applicant’s earnings. Hence higher the age lesser the chances of his loan getting processed for longer duration

Location Restriction

Banks have specific norms with respect to the area of a flat i.e. location specific restrictions. They may not grant the home loan in particular location either because that area is black listed in their record or because location is not within its geographic limit.

Financial Condition

Eligibility for your home loan and the amount of loan that you are eligible to get from bank depends on your annual income. Before approving home loan application, bank will check whether applicant’s monthly income meets the minimum income requirement, what is proportion of fixed income in his earnings, and whether he has a clean credit background or not. A person with a regular source of income and who has not changed his job frequently is preferred by lender as the chance of defaulting in repayment is rare. Further, if he has additional savings and a healthy bank account, his chance of getting loan is higher.  On the contrary, a person with many dependents and heavy financial commitments who changes job frequently may not get home loan.

Loan application has been rejected before

In India, CIBIL is an individual body who keeps the past financial history of the applicant. If your loan application gets rejected, this is also recorded in CIBIL your record.  Applicant whose application for loan has been rejected before for several times than there may be chances of his application may gets rejected again because it reflects very high desperateness for credit.  

The author of the article is a financial planner with Bonanza Portfolio Ltd

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e-mail: Sejal Patel

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