You have planned to apply for a home loan to convert your dream home into reality and research about different lenders, finally you have applied for it. But here is the most frustrating part of the loan when you gather a lot of documents and do everything right but at the end the bank rejects the application but why? Let’s understand the top 14 reasons banks reject your home loan application.
This is one of the most common reason for rejection. If your credit score is low then banks will of course reject the application without thinking about much. A credit score or CIBIL score is a numerical representation of your creditworthiness. Banks use this score to decide if it's safe to lend you money. 750 or above is consider a good credit score in India and if you have too bad scores then your application will be rejected not for home loan but for every loans like personal loan, car loan and others.
Delayed or missed payments
High credit card utilization
Multiple loan inquiries in a short period
| Credit Score | Review |
|---|---|
| 420 | Poor category (Very difficult to get a loan) |
| 630 | Fair Category |
| 690 | Good Category |
| 770 | Very good Category |
Banks like it when you have a steady job history. Changing jobs a lot might make them worry that you won't keep getting paid regularly. If you change your job within 8-9 months this is a red flag for banks to give a loan. Try to to work in an organization at least 1.5-2 years to increase your chances for loan application.
Shows lack of financial stability
Raises concerns about job security
Debt-to-Income (DTI) ratio is a financial measure that compares your monthly debt payments to your gross monthly income. It helps lenders assess your ability to manage your monthly payments and repay debts.
Example: Imagine you earn ₹50,000 per month and have the following monthly debt payments:
Home Loan EMI: ₹15,000
Car Loan EMI: ₹7,000
Personal Loan EMI: ₹5,000
Your total monthly debt payments = ₹15,000 + ₹7,000 + ₹5,000 = ₹27,000
To calculate your DTI ratio: DTI ratio = (Total monthly debt payments / Gross monthly income) x 100 DTI ratio = (₹27,000 / ₹50,000) x 100 DTI ratio = 54%
In this example, your DTI ratio is 54%, which means 54% of your gross monthly income goes towards paying off debts.
If your DTI ratio is high then it’s likely that banks will reject the application.
Banks evaluate your income to assess your ability to repay the loan. If your income is insufficient to cover both the loan EMIs and your other expenses, your application may not meet the bank's criteria for approval.
Answer: 25,000-30,000 Rs. per month
Incomplete or incorrect documentation is one of the most common reasons for loan rejection. Most of the people don’t maintain a proper documents and it result, reject the application. Banks require a complete set of documents to process your application.
Identity proof: Aadhar, PAN, Voter
Address proof: Aadhar, PAN, Voter
Income proof: Salary slip
Property documents: All deeds with proper registration.
Solution: Double-check all your documents before submission. Ensure they are accurate, up-to-date, and complete. If you have any doubts please contact your lender.
Many banks and also individual want an applicant of the home loan such as brother, spose, cousins and other to reduce overall EMI burden and also get a chance to get low interest rate with faster approval. But the main problem is when the co-applicant has a bad credit or CIBIL score then bank will reject the application.
Banks will access your background like how much you earn, what work you do, what your family members do and everything after evaluating the repayment ability of your if bank thinks that ability is low then the might reject the loan.
Solution: Provide proof of all your income sources and financial stability. Consider opting for a longer tenure to reduce the EMI burden.
Banks take into account your employment type—whether you are a salaried employee or self-employed—when assessing your eligibility for a loan. Typically, salaried applicants are perceived as lower-risk borrowers compared to self-employed individuals. If you are business owner then show some income proofs to gain confidence of lender.
The age at which you apply for a loan influences both the tenure offered and the bank's decision-making process. Younger applicants often benefit from longer loan tenures, whereas older applicants may undergo more rigorous evaluation. If you are applying at early 30 then this will be okay but if you are applying after 45 or 50+ then the banks see this as a risk of finance the loan.
When you apply for a loan of 1 crore if the property is valued at 80 lakhs then bank will reject the application. In general bank give 90% and some bank also offer 100% on the value of the property but if there is a difference in property valuation and loan then the application will be rejected.
Having multiple existing loans can escalate your financial obligations and pose a higher risk to the bank. This situation suggests potential difficulty in managing additional debt repayments.
Solution: Prioritize paying off smaller loans and settling credit card balances before applying for a home loan. Maintain a balanced credit portfolio by avoiding new loans wherever possible. This approach helps demonstrate responsible financial management and enhances your chances of loan approval.
When you have fully repaid a previous loan, banks typically request a No Objection Certificate (NOC) as evidence. The absence of this document could result in your application being declined.
Solution: It is advisable to always obtain an NOC from the lender immediately after repaying a loan. Include this document when submitting your home loan application to ensure smooth processing.
Most of the bank offer 90% loan of your valuation of property if you don’t give any down payment then the bank might reject your application.
Solution: Save and plan for a sufficient down payment. Check the bank’s requirement and ensure you have the necessary funds ready.
Being a sole borrower may carry higher perceived risk, particularly if the borrower's income is not substantial.
Solution: To enhance your application's strength, consider adding a co-borrower who possesses a stable income and a commendable credit history. This step can potentially improve your chances of loan approval.
| Reason | Impact | Solution |
|---|---|---|
| Low Credit Score | Reduces chances of approval | Maintain score above 750 |
| Frequent Job Changes | Indicates instability | Maintain stable employment history |
| High Debt-to-Income Ratio | Indicates high financial burden | Reduce existing debts |
| Insufficient Income | Lowers repayment capacity | Ensure income meets bank’s requirement |
| Incomplete Documentation | Delays or rejection of application | Double-check and complete all documents |
| Co-applicant’s Poor Credit Score | Negatively impacts application | Ensure co-applicant has a good credit score |
| Low Repayment Ability | Indicates risk in repayment | Provide proof of income and opt for longer tenure |
| Employment Type | Affects loan eligibility | Provide detailed financial proof for self-employed |
| Age | Affects tenure and approval | Apply at a younger age |
| Lower Property Value | Raises concerns about loan security | Ensure property is legally clear and valued |
| Multiple Existing Loans | Increases financial burden | Pay off smaller loans before applying |
| Lack of NOC from Previous Loan | Indicates incomplete previous loan closure | Obtain NOC after repaying previous loan |
| Insufficient Down Payment | Fails to meet bank’s requirement | Plan and save for sufficient down payment |
| Single Borrower | Perceived as riskier | Consider adding a co-borrower |
Understanding why home loan applications get rejected can help you prepare better and increase your chances of approval. Maintaining a good credit score, having stable employment, paying down existing debts, and providing all necessary documents are crucial steps to strengthen your application. Additionally, factors such as the property's value, making a substantial down payment, and adding a co-borrower can boost your eligibility. Remember, thorough preparation and meeting the bank's requirements are essential for securing your home loan successfully.
How can EazyBankLoan help you in taking a loan? We understand the process of procuring a loan can be stressful. That is why we take care of your Loan application process, saving you time and hassle by handling the paperwork and communication with the loan providers.
Check the details here at EazyBankLoan
Need help? Reach out at support@eazybankloan.com
Typically, banks require a minimum of 10% of the property’s value as a down payment.
Yes, self-employed individuals can apply for home loans by providing detailed financial statements, tax returns, and proof of business stability.
Maintain a good credit score, ensure stable employment, reduce existing debts, complete documentation, and consider adding a co-borrower.
Understand the reason for rejection, rectify the issues, and reapply after improving your eligibility factors
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