Applying for a home loan may be one of the most crucial steps in buying a home or building one of your own. The whole process involves a lot of research, time, wise decision making, and keeping required documents on hand– yes, it’s truly far from a walk in the park.
Nevertheless, no matter however prepared you think you are, home loan denial happens, but it certainly doesn’t mean you can never become a homeowner. There are many reasons why a lender may not approve your loan, and the key to success (or an approved mortgage) is understanding why and what you can do to avoid any problems during the application.
Here are nine common reasons why a mortgage loan is denied, and learn more about what NOT to do to ensure loan approval in the future.
1. UNPAID DUES
When you’re planning to become a borrower, one of the most important things that are looked at for approval is your credit history and record. Your credit history check will show if your payments of dues, EMIs of other loans, etc., are on time. Make sure to be punctual with your payments and never miss deadlines on EMIs and credit card dues. It pays to be aware of your bills and repayment dues.
2. OUTSTANDING DEBTS
If you’ve got more than one debt under your name, your income is calculated by subtracting the credit payments from your total income. If the lender’s analysis deems your repayment capacity to be inadequate, then the bank or lender has the right to refuse you a home loan offer.
3. ADDRESS IS ON DEFAULTER LIST
There are some cases where if you have moved to an address previously rented by someone with unpaid credit card bills or loans and has the same address in the bank records, then it could be on the defaulter list. Being in this kind of situation decreases the possibility of your home loan being approved.
4. UNSTABLE JOB
Are you the type who changes jobs too quickly? Your job stability will be a huge factor in your home loan application as banks consider it one of the main criteria for approving a home loan. Most banks require the borrowers to be employed in a particular firm or company for at least three years to be eligible for a mortgage loan. Also, if the applicant’s company, although reputable, seems unstable, the bank reserves its right to reject the loan.
5. FAILURE TO FILE INCOME TAX
Make sure to file your income tax every financial year, whether or not you receive your Form-16 from your employer! Banks and various lenders check for a clear track record in filing income tax returns for at least the last two years before approving a home loan.
6. YOUR AGE DURING APPLICATION
Did you know that home loan applications get rejected if the borrower’s age is close to retirement age during application? The lenders are hesitant to offer loans to borrowers of this age group as it assesses their repayment capacity to be poor after a few years. However, there are still some banks willing to offer short-term home loans. Nevertheless, short-term loans for high amounts would lead to a high EMI, taking away the comfort of availing of a home loan in the first place, so a borrower’s age is vital in terms of home loan rejections.
7. CREDIT SCORE
Remember to keep your credit score high, as it plays a significant role in getting approved for a mortgage loan. Ensuring a good credit score will help you get that home, no doubt.
8. PREVIOUS REJECTED LOAN APPLICATIONS
If you didn’t already know, your credit report comprises a complete record of your previous loan applications, including the rejected ones. So, that said, you should know your results from one bank before you apply for a loan at a different one. Doing so will help you correct your mistakes and ensure that you don’t repeat any errors the next time you apply for a loan.
9. LOW APPRAISAL
If your prospective property has a significantly lower appraisal than the purchase price, then the loan-to-value ratio may be higher than the lender can legally approve. To avoid this from happening, renegotiating or making a more substantial down payment is key.