After years of search and brainstorming, Delhi-based Amit Khanna finally zeroed in on his dream home in Gurgaon and subsequently applied for a home loan. However, as Khanna waited for the approval came the bad news that his application had been rejected. Khanna couldn’t believe it because apart from having a high-paying job, he had never defaulted on any loan and even the housing project was being developed by a reputed builder. So why was his home loan application rejected?
Well, there may be many reasons for a home loan rejection – some common and some not so common or lesser known. Let’s take a look at six uncommon reasons:
- Builder not approved
This is one of the most common but unexpected reasons for the rejection of a home loan application. Not all banks give loans against the property of builders. It is, therefore, critical to understand from the builders themselves which banks have approved them and which have not.
“It’s possible that when you approach a bank or a housing finance company for getting a home loan, you might come to know that the very builder is not approved by it. If that is the case, then you might not only get the shock of your life, but it will also make it impossible for you to get a home loan from the concerned bank and you may have to go to a different bank for the same,” says Parth Pande, co-founder of Finance Buddha, a marketplace for retail lending products.
- Builder approved but property not approved
This is another unexpected reason for a home loan rejection. A builder, for instance, may figure in a bank’s list of approved builders, but a specific project launched by him may not have been approved by the concerned bank. In addition, there are likely to be cases where particular phases of a project (if it’s a large one) may not have bank approval. Thus, to avoid unexpected home loan rejections, it’s important to check that apart from the builder, the entire project – including its different phases – has got the necessary bank approval.
- Valuation-related rejections
Imagine a scenario where one is buying a house in the resale market. Both the buyer and the seller mutually decide the price of the property and the buyer decides to go for a home loan to fund the purchase.
“The bank or the housing finance company, however, would sanction the home loan on the basis of the valuation of the property as ascertained by it rather than the price decided by the buyer and the seller. If the valuation amount is higher than the mutually-decided price of the property, then there is no issue. However, if the value of the property is lower, then the bank may choose to give a lower loan amount than required, or may even reject the home loan application altogether,” informs Pande.
- If previous tenant was a defaulter
Many housing finance companies (HFCs) these days blacklist both the defaulter and his residential address. Therefore, if you are staying in a house which is in a bank’s defaulters’ list because of the previous tenant who defaulted on a loan or credit card payment, there are high chances of your home loan application getting rejected. However, even if a particular address is not in the defaulters’ list, then there is a possibility that the very locality is not in the good books of the banks/HFCs because of some other reasons. Your loan application may get rejected in such a case.
- Credit history issues
Many people do not check their credit scores and are mostly oblivious to the same. For instance, a survey conducted by credit health improvement company Credit Sudhaar sometime back had revealed that more than 85% of the respondents were unaware of credit bureaus, while a whopping 92% didn’t know their credit scores. No wonder loan rejection because of credit score issues comes as a surprise to many loan takers.
Surprisingly, even people with a credit score of 700 and above (out of 900) are sometimes denied credit because of past mistakes. For example, there may be some old payments or charges missed by them which they have forgotten about, or they might have settled a loan long back. But the same can have a negative impact on one’s credit history and this alone can lead to the rejection of a home loan. It’s very important, therefore, that customers regularly check their credit scores and fix issues, if any, around their poor credit history immediately.
- Unstable employment
Lenders place a lot of importance on job stability and certain banks even insist that an applicant needs to be employed with a concern for three years or more to be eligible for a home loan.
“Lenders are very meticulous about the stability of an applicant’s job. Before sanctioning a loan, a number of lenders insist that one should have a stable job and also be a permanent employee in a company. If these conditions are not met, then one’s application for a home loan will get rejected,” says Manish Shah, co-founder & CEO of financial services advisory platform BigDecisions.com.
It is clear that there are many uncommon/unexpected reasons for the rejection of a home loan application, and one can’t be 100% sure of getting a loan even if one is earning a handsome salary or maintains a good credit score.