Let’s face it. Buying a house is not easy, unless you were born with a silver spoon in your mouth. You have to save up for the down payment and furnishing, compare innumerable properties, and then secure a loan. Talking about Home Loans – getting a Home Loan disbursed is trickier than finalising a house. You have to be sure that everything from your eligibility to the property you are purchasing is in order. Though the bigger picture might look flawless, there are some tiny details that can make the lender stamp ‘rejected’ instead of ‘approved’ on your loan application. Let’s look at 6 lesser-known reasons that most Home Loan seekers overlook and then experience the pain of rejection.
Additional Reading: Debunking The Top 6 Home Loan Myths
After a lot of hunting, you find a lovely spacious apartment—friendly neighbourhood, swimming pool, gym, club, proximity to good schools/medical facilities (anything and everything you can think of)—and mentally picture yourself moving in. Eagerly, you search for Home Loans and find one offering a low interest rate and excellent pre-closure terms. Eligibility, CIBIL Score, property papers – all checked. Next step: apply! While you wait with bated breath (sure in your heart that your application will be approved), you get clean bowled by a rejection intimation. Where did you go wrong?
Did you check if the bank knows the builder as well as you do? Yes, banks do consider the name and reputation of the builders before sanctioning a loan. This does not always mean that your builder is hiding skeletons in a cupboard (though, sometimes it could mean that. Unfinished past projects, you see.) It could just be that the builder has partnered with some banks exclusively. Hence, before applying for a Home Loan, ask your builder about their partner banks. This will save you the pain of seeing rejection in your credit report and the hassle of reapplying for the loan.
Popular builders are favoured by almost all banks over new entrants. But new entrants can cut you amazing deals to grab market share. Do your research about the builder and also the banks they have partnered with.
Do not confuse the builders with their projects. Banks approve builders separately from the properties they build. If a builder is developing multiple properties, each project will be scrutinised for loan eligibility individually. What does this mean? For the same builder, lenders can approve one property while rejecting another. What does this mean for you? The builder might be approved by the bank, but check if the property you are eyeing is also approved. The land could be disputed or certain regulatory clearances could be pending. Also, if it’s a big project, approval for different phases generally comes in a staggered manner. If you are looking at a multi-phase property, ensure that the phase in which you are looking to buy an apartment is approved by the bank. Small thing, but of immense importance.
Valuations can burst your ‘I own a home’ bubble. This is especially true if you are looking to purchase a pre-owned property. It might so happen that the lender values the property lower than what you agreed upon with the seller. In this case, you might get a smaller loan, or in some cases, receive rejection. However, if the bank values the property for more than the negotiated rate, then it’s smooth sailing. In these cases, it’s wiser to first find out the true value of the property and then apply for a loan. There are property valuers who would do the job for you.
Other than helping you with the loan, knowing the true valuation of the property will allow you to negotiate confidently with the seller. Don’t get taken for a ride. That foolish feeling will last a long time. It might even make you look at the home you purchase with depressed affection.
It’s not always the builder or their projects at fault. We are not blaming you either. But it’s fair to assume that if you are chasing a Home Loan, then perhaps you are staying in a rented house. Nothing wrong with it either. But maybe the tenant who occupied the property before you had defaulted on a loan? This means that your address will be listed in the defaulter list of banks. Yes, it’s not fair. An ex-tenant defaulting on his/her loan shouldn’t have anything to do with you. But sharing the same address can have this repercussion.
When you apply for a Home Loan, specify the time for which you have been staying in the house. In case there was a defaulter living there before you, the bank will be able to check the timeline and know that you are in the clear. These are minor issues. but don’t let these slips muddy your dream of owning a home.
Your employment status is very crucial for the banks to determine your eligibility for a Home Loan. After all, you need to be an earning individual to pay your EMIs. But just being employed is not enough. Your resume needs to indicate that you are a responsible person who doesn’t jump jobs every second year. Jumping jobs frequently indicates instability. Now, Home Loans are long-tenure loans and we are talking mammoth-sized loan amounts.
If banks get the inkling that you might be out of a job in the next few years, they’ll reject your loan application. If your loan tenure is 10 years, then banks would like to see that you are capable of holding a job for that tenure (at least). When you apply for a Home Loan, you might be given a condition – you need to be in your current job for at least 2 or 3 years (this might vary with banks). Banks won’t take the risk of making friends with a potential defaulter. So, get this detail straight before you take the Home Loan plunge.
Credit Score Complication
Yes, we had to talk about your Credit Score. Despite numerous articles on it everywhere on the internet, a large chunk of the Indian population is unaware of it. They have no idea what this score means and the power it wields over your loan and Credit Card applications.
Essentially, a Credit Score is your financial marks card. It’s a record of all your bank accounts, your credit accounts, and everything else banking. A credit report also journals how good you have been with your loan and Credit Card repayments. The defaults and misses are mentioned too. Then there is a number in your report called the Credit Score. This number sums up your financial behaviour in three digits. A good score of 750 and above is WOW, anything less is mediocre, and the 400-ish range is not going to curry any favours with any lender any time soon, unfortunately.
So when you apply for a Home Loan, banks will extract your report from credit agencies. They will check your Credit Score and then decide whether they want to give you a loan or not. Click here to read more about factors that determine your Credit Score. There are ways to improve your Credit Score, so don’t lose heart. In a nutshell, Credit Score plays a big role in winning approval for your Home Loan or any other loan application.
Bonus Read: Home Loan Handbook: All Questions Answered
We hope you are more confident now about applying for a Home Loan. Do leave a comment in the comments section below if you have faced any of these problems. If you have faced any other problem that you feel was out of the ordinary, then do share it with us.