Many times a home loan application is rejected even though an individual has a high credit score. It therefore becomes imperative to know the factors that can lead to the rejection of a mortgage application in order to avoid such situations.
Reasons for the rejection of the mortgage application
Here are some of the reasons why financial institutions may reject a home loan application:
- Dispute in credit report
If information such as loan history, personal and business details, and account details are incorrect in a credit report, there is a high chance that the loan will be rejected. There are several credit bureaus outside of CIBIL, such as Experian which provides a Experian Credit Score which may be taken into consideration during the home loan approval process.
- Unstable employment status
It is mandatory to have a stable employment record in a reputable company for the successful approval of a home loan. If a person is not an employee of a reputable company, financial institutions will doubt his ability to repay the loan, which will lead to the rejection of the loan application. Self-employed people also face rigorous scrutiny of their loan applications.
- Documentation errors
There is a significant chance of uploading wrong documents while completing a home loan application. There may be several reasons, such as an unclear scan or an error in understanding the documents to be uploaded. This, in turn, leads to the rejection of loan applications. Thus, it is essential to ensure that all relevant documents are in order before applying.
- High debt to income ratio
Apart from credit score, if an individual has a high debt-to-income ratio, there is a good chance that the loan will be refused. This is mainly because financial institutions consider repayment capacity based on an applicant’s monthly income versus unavoidable expenses. Borrowers with high liabilities relative to income will not be able to pay their monthly payments on time and this will be a problem in the future.
- Documentation errors
There is a significant chance of uploading wrong documents while completing a home loan application. There may be several reasons, such as an unclear scan or an error in understanding the documents to be uploaded. This, in turn, leads to the rejection of loan applications. Thus, it is essential to ensure that all relevant documents are in order before applying.
- Discrepancy in the information provided
If the information provided by the applicant does not match the documents or online records, such applications may be rejected without further processing. It is essential to carefully fill in the application form with the correct and truthful details of the applicant.
- Erroneous tax records
Tax records are carefully checked by officials when assessing a home loan application. If these documents are not compliant, financial institutions may reject the mortgage application. Therefore, it is essential to collect and keep all the necessary tax documents at hand before applying for a loan.
- Guarantor for a defaulter
There may be situations where a person has agreed to stand surety for a friend or family member who was unable to repay a previous loan on time. This also reduces the chances of loan approval.
- Frequent job change
If individuals change jobs frequently, financial institutions view them as a person without stability in decision-making. Thus, they refrain from approving such people’s loan applications.
- Unpaid dues
No financial institution will approve a loan for people who have not cleared their previous advances. This is because they doubt the possibility of multiple loan repayments within a certain income limit. Moreover, unsettled loans show that the borrower is irresponsible towards credit repayments.
- Age of loan applicant
The age of a loan applicant is important when processing a loan application. If he is close to retirement age; there is a high chance of rejection of a home loan. This is mainly due to the perception of no or low cash flow after retirement; therefore, it will be difficult to pay EMIs in a timely manner.
- Not pledging the right property
Individuals should carefully choose which property to pledge when applying for a home loan. Sometimes, if the pledged property is in a posh location, there are chances of a higher home loan amount being approved. The reverse is also quite likely to happen; if the property is old or in a strange location, it becomes difficult to get substantial credit against it.
- Apply for multiple loans
If a person applies for more than one loan simultaneously, there is a risk of loan rejection. Financial institutions view them as unsuitable candidates because they seem to lack stable decision-making power.
When applying for a home loan, individuals should keep the above points in mind apart from a good credit rating. This would greatly reduce the chances of loan rejection. Multiple loan application rejections further reduce the credibility of the borrower, which impacts the chances of future loan approvals.
Disclaimer: This article has been published in association with Bajaj Finserv Direct Limited and not created by TNM Editorial.
