What is Home Loan ?
Home loan is important source of finance for buying a home. It is important to ensure that your home loan is affordable for you and you are comfortable to repay them. Home Loan is a Secured Loan offered against the security of a real estate property which is funded by the bank's loan, the property could be a personal property or a commercial one.
Loans are provided based on the market value, mainly estimation given by banks or the registration value of the property.
Once a lender/banker is comfortable with your EMI payment capacity, the lender will figure out the total loan that can be given to you. Generally, bank expects that you will pay at least 15% to 20% of home purchase price amount as the down payment. The remaining 80% to 85% is the loan that bank will give you.
Please Note: if the borrower is failed to pay back the home loan, the banker can retrieve the lent money by selling the property.
WHY BANKS MAY REJECT YOUR HOME LOAN APPLICATION
Here are some little known parameters used by banks to decide your loan eligibility and how you can ensure you meet these. If you're planning to buy a house, you've probably begun exploring how and where to get a home loan. Your research will have pointed out the most essential factor that will help you get one-a good credit score. If you had never bothered to check your score before, you must be busy ensuring that you get a high one. A good way to do this is by paying your credit card dues in full and on time. In case you want a substantial loan, you will also have to increase your income level and pay all your previous outstanding loans. These are not the only reasons your loan application could be rejected. There are several others factors that could influence this decision; for some of these you may not even be responsible directly. However, you need to be aware of these, so that if such a situation arises, you can tackle it and obtain a loan without any botheration.
Factors of Home Loan Rejection
1. Are You Compulsive Job Hopper
It is a common practice among the current generation to switch jobs every couple of years. This, One case of banks, implies instability and could become a reason to reject your loan request. Banks place a high value on job stability and often insist that an applicant needs to be employed with a particular company for a certain minimum period to be eligible for a home loan. This period usually varies from one to three years.
Tip: Stick with a company for at least a year if you are planning to apply for a loan. If you want to switch jobs, do so after your loan is sanctioned. This minimum time period is acceptable only during the initial years of your career. As you gain experience, it will be better if you work for a longer period, say, more than three years, at a company to
2. Your Residential Address is on the Defaulter List
If you live in the same house as someone who is a loan defaulter, it's probable that your residential address is on a watch list, which could lead to your loan application being rejected. The defaulter could be a tenant, relative or a family member, who may have slipped up on a loan payment or may not have paid his credit card dues and, hence, was reported to the national credit bureau.
Tip: Take up this issue with your relationship manager at the bank. Indicate that the previous tenant (if it is the case) does not have a personal relationship with you. In case of a family member, you will need to stress that he or she is not dependent on you.
3. Your Profile Doesn't Fit the Bank 's Policy
Each bank is guided by its internal policies. If some income or debt profiles or geographical areas are listed in their policy guidelines as not appropriate for lending, the bank will not be able to fund your loan.
Tip: In case your credit profile does not fulfill the criteria listed by the bank, you could provide additional security. This could be in the form of a guarantor, a co-borrower who has a high credit score, collateral such as insurance policies, fixed deposits, stocks and mutual fund portfolio, property, or proof of your repayment ability (in case you run your own business). If the area you live in is outside the geographical limit that is specified by the bank, you should try applying to the nearest bank or branch in a location that is on the bank's approved list.
4. You Want to Purchase an Old Building
Some banks do not lend money if the apartment or house you want to buy is more than 20-30 years old. This criterion, that is, the age of the building, varies across different banks.
Tip: The value of the land will always be considered while deciding on the funding for older buildings. Try to increase the down payment and add some form of security to negotiate for a lesser loan amount.
5. Your Application has been Rejected Earlier
Most banks have records of all rejected loan applications in their database. When you apply to a bank, this will show up in your application verification check and pose a problem as it affects your loan worthiness.
Tip: Weigh the pros and cons before you apply for a loan simultaneously at different banks. It is best to wait till you know you cannot receive a loan from one bank before you apply to another. This will give you a chance to rectify errors or update your credit records in case there is an issue with it before you approach another lender. If the reason for your previous loan rejection is other than a default or due to a reason that is unclear to you, it up with the bank and find out the exact reason for the rejection. In certain cases, the bank may be willing to reconsider its decision.
