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Reasons for Home Loan Rejection and How to Avoid it

Highlights

  • Applying for a home loan? Be mindful of the reasons that can lead to application rejection
  • Unapproved property, incomplete property, unstable profession can lead to home loan rejection

Rejections are always painful especially when it’s unexpected. Buying a new house is already a tedious task and when you have to do it via a home loan, you want things to be in sync with your requirement. The process of getting a home loan approval is sometimes very smooth. But there are also times when you do not know as to what went wrong and have to face rejection from the lender. To avoid such instances where you are left with a disappointment, you should prepare yourself in advance to get approval for your home loan.

In this article, you will get to know the reasons behind home loan rejections. Later you will get information on things required to get approval for your home loan.

Reasons Behind Home Loan Rejection

  • Unapproved property or builder or both
  • Defaulted property address being a defaulter
  • Incomplete property and income documents
  • Bad credit history
  • Valuation-related rejection
  • Unstable profession
  • Excessive existing debt
  • Multiple loan rejections

Now, what do you need to avoid rejection? Just the opposite. Yes, read below the trick to get a home loan smoothly.

What do you need to get home loan approval

  • Approved property purchase from an approved builder
  • Proper documents (both income and property)
  • Good credit history
  • Elaborate your liquid assets to gain lender’s trust
  • Save money for down payment
  • Building long term relationship with the lender
  • Guarantor
  • Professional stability
  • Few existing commitments (financial)
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Purchase approved property from an approved builder

You have to check whether banks approve the properties of your builder. You also need to understand if a specific project launched by the builder is approved or not. So, you need to check whether the builder and also the entire project including its different phases are approved by the lender or not.

Documents you should have to get home loan approval

Each and every document asked by the lender has to be submitted otherwise no matter how good your profile is, you will not get approval from top lenders. Only a few NBFCs accept applications without income proof but they offer relatively higher rate of interest. So, the list of documents that are mandatory for a home loan and get approval for it is given below:

KYC Documents

ID & Address Proof (Any One Required)

  • Aadhaar card
  • PAN card (Mandatory, if income is considered for loan eligibility calculation)
  • Valid Passport
  • Voter ID card
  • Driving license

Residence Proof (Any One Required)

  • Utility Bill: Electricity, Telephone, Postpaid mobile, water bill etc.
  • Ration card
  • Letter from employer
  • Bank statement /copy of Pass book reflecting address
  • Valid Rent Agreement
  • Sale Deed

Income Proof

Salaried Individuals

  • Salary slips for the last 2 months or salary certificate*
  • Cash Salary – Income details on Company Letterhead
  • Copy of bank statements for the past 3 months (salary account)
  • *If variable components like over time and incentives are reflected, then salary slips for the past 6 months are required.

Self-Employed Professional

  • Certificate of qualification for professionals : CA, Doctors or Architects
  • Copy of last two years’ income tax returns, along with computation of income
  • Copy of last two years’ P/L account with all schedules and audited balance sheet, wherever applicable.
  • VAT or Service Tax returns or TDS Certificate
  • Bank statement for the last 6 months (Savings account, current account and O/D account)

Property Documents

  • Allotment letter from builder
  • Agreement of Sale
  • Registration and stamp duty receipt
  • NOC from builder
  • Own Contribution Receipt (OCR )
  • All builder linked documents
  • Development Agreement
  • Tripartite Agreement
  • Partnership Deed
  • Sale Deed
  • Title Search Report
  • NA order
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Build a good credit history

Another important tool that can fetch you approval for your home loan and also a lower rate of interest is your credit history. If you have no credit score, you can start building it in case you are not looking for a home loan in next few years. You can start with credit card and then small loans such as consumer durable loans or personal loans can help you get a good credit score and history over a period of time. Most banks and NBFCs consider a credit score of 720 or above for home loan applications. However, there are some NBCFs that even accept applications with a credit score of 650 subject to fulfilling certain conditions as laid down by these financial institutions.

Elaborate your liquid assets to gain lender’s trust

You have to make the lender trust your repayment capacity. For this, you need to present all other ways on which you can rely for home loan repayment. You can show your spouse’s income, parent’s income, immovable assets in your name and your overall savings. This helps the lender trust that in case you are unable to repay the loan from your salary, there are other sources to get it.

Save money for down payment

This is a common myth in the market that you can get 100% home loan. The maximum loan amount you can get as per RBI guidelines is 90% of the property value which is up to a maximum of Rs. 30 lakhs. You will have to pay the rest 10% as down payment to the builder from your pocket. So, start saving money as much as you can to reduce the loan amount.

Take advantage of long term relationship with the lender

If the loan that you are about to take is the second one from the particular lender, you can have a distinctive advantage compared to someone being new to the financial institution. Even an existing bank account relationship can sweeten things for you. You can mention that you are planning to invest in FD or mutual funds or any insurance policy as it pushes them to consider your application for products as well in the future. Also, it provides them security in the form of your assets in case you default in your repayment.

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Manage to get a guarantor

The guarantor has an important role in a loan application. So, if you manage to get a guarantor for yourself, it will be an advantage for you. If your guarantor has high creditworthiness, income, credit history and long term relationship with the lender, it will all help your profile get credibility. However, it is not mandatory to provide guarantor to all the lenders.

Maintain professional stability

There are many rejected cases for lack of professional stability. So, having high income and working in an MNC is not going to help you if it is just new. Thus, maintain a good professional stability before you plan to apply for a home loan.

Fewer financial liabilities

You must know that only 50% of your income is considered eligible for the loan. So, if you have other loans or debts on your shoulders and you are currently planning to apply for a home loan, think again. Because to get approval and a desired loan amount, you have to be free from other financial liabilities such as existing loan or credit card debt.

With the above information on the effective measures through which you can get home loan approval or rejection, you have got the idea what you need to do and what you need to avoid. So, consider these things in mind and proceed accordingly.

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  • Home Loan Interest Rates October 2019
    Axis Bank8.90% - 9.15%
    Bank of Baroda8.40% - 9.40%
    Citibank9.00% - 9.85%
    DHFL9.05% - 9.95%
    HDFC8.25% - 9.30%
    ICICI Bank9.20% - 9.65%
    Indiabulls Housing Finance Limited8.80% - 11.05%
    Kotak Bank8.90% - 8.75%
    LIC Housing8.35% - 8.95%
    Piramal Capital & Housing Finance9.00% - 9.10%
    PNB Housing Finance9.25% - 12.00%
    Reliance Home Finance8.75% - 14.00%
    State Bank of India/SBI8.15% - 8.80%
    Tata Capital9.20% - 9.35%