Home loans are an integral part of the home purchasing process for most people. The homes can be purchased on an installment of up to 80% of the property value while the rest can be availed need to be paid as a down payment. The home loans are exempted under income tax section 24 for the interest repayment & under 80C for the repayment of the loan amount. The bank requires proper documentation & credit score for the approval of the loans. The bank charges a penalty to the borrower for the delay or default of loans. Thus the borrower should be careful about the due date of the installments. If the borrower defaults on the loans of any of the banks then in that case the entries are made in the CIBIL and then the borrower may not be able to avail loans or credit cards from any of the banks or an NBFC soon. Thus the borrower should be cautious about the repayment of the loans. The bank updates the credit score of an individual frequently. Thus if the installments are made on time the credit score may get improved thus helping the borrower avail future credits easily.
The loans can be rejected due to multiple reasons which the loan applicant should be cautious. Banks are keen to extend loans to the borrowers but are cautious while lending loans as the cases of bad debts of the loans are increasing. If the loan turns into bad debt it becomes difficult for the bank to recover the defaulted money through the seal of assets. The rising default cases lead to rising NPA’s i.e: non-performing assets which are not good for the financial health of the bank. Proper documentation is also expected from the borrower’s side to be submitted to the bank. If the bank finds anything suspicious then in that case the bank may reject the loans of the applicant. If the loans are taken in joint names then in that case the bank may require documents of both the borrowers. The bank also does the physical verification of the property before the approval of loans. The loan’s terms & conditions should be thoroughly be read by the borrower to avoid getting mislead or cheated by the borrower. The charges of penalty in case of delay of payments, interest rates being charged & tenure of the loans should be thoroughly be read by the borrower.
Following are the reasons for the home loans getting rejected:
- In-appropriate or incomplete documentation:
The bank requires government-recognized identity proof, income proof, employment proof & property documentation papers with clear titles. If the borrower is not able to provide these necessary documents or if the documentation is found to be incomplete then in that case the bank may not be able to proceed ahead with the loans process.
- No income proof:
If the loan applicant is not able to provide any income proof or is found to be hiding income then in that case the bank may reject the loans of the applicant. Bank requires adequate proof of the documents for the approval of the loans.
- Poor CIBIL score of the applicant:
If the CIBIL score of the lender is found to be poor then in that case the bank straight away rejects the loan of the applicant. Bank expects a minimum credit score of 700 points. If the score is found below 700 points then in that case the bank may sometimes approve the loans at higher interest rates or else sometimes may reject the loan application. The approval of the home loans may differ based on lender to lender.
- Rejection due to improper property titles:
If the property documents are not proper for the house then in that case the bank may reject the home loans. Also if the property is found in a poor state or a dilapidated state then in that case the bank may reject the loans. Even for illegal encroachments banks may reject the loans of the applicant.
- Insufficient income of the borrower:
If the borrower is not having adequate income to buy the property then in that case the bank may reject the loans of the borrower. The minimum criteria of the bank for the approval of loans is Rs.25,000. Some bank’s criteria may differ according to their rules & regulation. Also in case of the prices of the property, the applicant should fit into the income criteria for the purchase of the property.
- Frequent job changes or financial un-stability of the applicant:
The bank may reject the loan proposal if the applicant’s job is not found to be stable or else if found with no stable income. Also, unemployed people are not entitled to loans. Also, people working as freelancers or else as project consultants who work on a project/contract basis with no consistent income then, in that case, the loans of the borrower may be rejected.
The borrower should take care of all the above reasons to be taken care of while applying for the loans. The proper documentation and proper credit score are an essential part of the loan approval process. The loans should be applied by the borrower in accordance with the financial repayment capacity of the borrower to avoid rejection of loans.