Many of us dream of owning a home. A house is an expensive purchase that is challenging to own without a loan. Lenders conduct extensive due diligence before processing loan applications since a home loan includes a significant sum of money and has a lengthy 20–30 year term. Your application for a home loan may be approved or denied depending on a number of variables. They can include things like your salary, your credit history, prior loan commitments, required paperwork, and other aspects of the selected property.
Any loan application denial deflates your dreams, but a home loan denial is especially devastating. Since many of us rank buying a home as one of our top ambitions, it is natural to experience disappointment once a home loan is denied.
To begin with, you must comprehend the specific explanation of why your previous home loan application was denied so that you may focus your corrective efforts on it.
Evaluate your credit score
A loan’s acceptance or denial is significantly influenced by the applicant’s credit score. The foregoing paragraphs have made clear that taking out a home loan is a significant, long-term commitment. In order to ensure early repayment of the home loan EMIs, lenders prefer to work with borrowers who have credit ratings above 750. A low credit score is frequently the primary factor in loan denials. Use a home loan EMI calculator to find your EMI beforehand.
Sometimes people don’t check their credit ratings before applying for a loan, which increases the likelihood of being turned down. If you forgot to check your credit score before submitting a loan application, do so right away. Get your free credit report and, if necessary, receive tips on how to raise it.
Once your credit score is in the clear, you might choose to reapply for a loan. It’s also conceivable that the credit report contains errors. Low credit scores could be the result of these mistakes. Take fast action to have them fixed, and you will soon notice an increase in your credit score.
Lower your loan amount
A house is frequently a lifetime investment. As a result, you always want to choose the greatest option, often going over budget to do so. Lenders may not share your perspective on roughing it out or dipping into your money to purchase that dream property, but you may be okay with it.
Every bank has lending guidelines in place that assist them in figuring out the best amount that could be loaned for each loan application, taking into account factors like your credit score, other loans, your income, etc.
You shouldn’t pay more than 40% of your net income in EMI payments. Using a smaller loan amount when applying can increase the likelihood that your home loan will be approved because the resulting EMI will be well within the permitted range.
Pay off existing loans
A home loan will be a strain on your budget if you already have too many debts. Before reapplying for a home loan, it’s a good idea to review your current portfolio of loans and credit cards. You run the risk of having your application denied if you are already servicing too many loans relative to your income.
Here, your income and past loan EMIs are crucial factors. Your application might have been denied by the lender because of this. Prior to submitting an application for a pricey loan like a home loan, it is wise to spend some time and pay off any outstanding loans with higher interest rates.
Another important prerequisite for a high credit score is a sound credit portfolio. A credit portfolio that is in good shape contains a balanced mix of secured loans, such as a home loan or car loan, and unsecured borrowings, such as credit cards and personal loans.
Therefore, before reapplying for a home loan in India, it is wise to have a look at your current debts and credit card balances and try to pay off some of them.
Consider adding a co-applicant
Adding a co-applicant may help your loan application get approved if you have previously been turned down for a home loan due to factors such as poor credit, a greater loan amount, or servicing too many loans.
Your loan application will have more weight if a co-applicant is included. The applicant’s total income will be taken into account, which will strengthen your application. Therefore, larger loan amounts shouldn’t be an issue.
When authorizing a loan, the co-credit applicant’s score is also taken into consideration. Therefore, if your spouse has a higher credit score, that could help your loan application. Your spouse, parents, or siblings may be your co-applicants under the law, with some conditions. Therefore, submitting a new application with a co-applicant may be advantageous for you if your initial application was denied.
Property approval issues
The property that you want to purchase can have problems getting numerous government approvals. Before approving a loan, all financial institutions carefully review these licenses and approvals. The loan application may be turned down if the approvals are flawed in any way.
The Real Estate (Regulation & Development) Act of 2016 has, however, made it possible for the launch of new projects with RERA approvals, which will lessen lender rejections on this basis.
We, therefore, advise you to check that the property has a clear title and that all necessary approvals are in place if your earlier rejection was due to problems with the property documentation or approvals. After all, you wouldn’t want to be forced to stay in a house that does not adhere to all legal requirements after making such a significant investment in it.
It is wise to contact your lender and ask for a list of all the documents, approvals, etc. that must accompany your loan application if you failed to submit some paperwork in the initial round. You can resubmit your application and include all necessary materials to ensure that it is accepted.
Conclusion
Home financing requires long-term dedication. As you take care to choose the ideal property, you should also take care to check your credit report, gather the necessary papers, verify your income, and satisfy any other requirements before submitting your application.
If your application is denied, you may feel disappointed, but it will also be recorded as a hard inquiry, which could harm your prospects of obtaining a loan in the future.