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:
1. 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.
2. 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.
3. 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.
4. 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.
5. 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.
6. 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.
Conclusion
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.
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