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Your home loan can be rejected in spite of a good credit score. Here’s why

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Your home loan can be rejected in spite of a good credit score. Here’s why

Do you have a good credit score and yet your home loan just got rejected? As strange and bewildering as it sounds, it is sometimes possible in specific scenarios. Like it or not, simply having a great credit score does not guarantee approval for your home loan in case you thought otherwise.

Here’s why this happens:

  • Seeking out the bank/lender at the very first stage- The home loan application may be eventually rejected due to factors different from overall home loan eligibility and your credit score. The rejection may be tied to the property that you are wishing to purchase. Banks usually prefer sanctioning loans for properties which are either under-construction/ready to move but have all approvals in place. Authorized properties from reputed and approved developers are easier to get loan sanctions for. Properties which do not have approvals or are unauthorized will lead to the home loan application being rejected. As a result, you should seek the lender later and first choose a suitably approved and authorized property with all title deeds and documents in order. Once the property has been identified, ask for all the right documents and get them verified. Thereafter, look for a lender to finance your home purchase.
  • Not being sure of the eligible home loan amount- Too many people make this mistake while applying for a home loan. Always be clear about some aspects prior to applying for your home loan. You should always have a clear estimate of your own budget on the basis of your income, family goals and other responsibilities, investments, down payment money and savings. You can use home loan eligibility calculators and EMI calculators in this regard. Do not end up applying for a higher home loan amount than what you can afford. Know what you can afford to repay and apply accordingly. Banks usually wish to restrict EMI repayments between 30-50% of net monthly income post deductions of other fixed expenditure. Applying for a higher amount than this will naturally increase the chances of the loan being rejected. You should also have ample funds ready for making the down payment.
  • Being evasive and concealing information- This one is a strict no-no! There should be 100% transparency when you are revealing your monthly expenses to the bank and your expenses along with other loans, debts and liabilities along with fixed investments, i.e. those you cannot stop or break. This will help the lender assess your repayment abilities properly and your loan application may be rejected if the lender later discovers that you have concealed some crucial information and there may be legal consequences in the future if something of this nature is proved. Always apply for the loan based on the right estimation of your expenditure and income, select a proper loan amount, rate of interest, EMI amount and tenor of the loan.
  • Not obtaining life or health insurance plans- It is recommended that you obtain life insurance or health insurance prior to taking your home loan. This will enhance your ability to encounter tough situations. Urgent medical treatments or similar expenses will be covered with health insurance instead of you having to dip into the budget for the home purchase. Additionally, a life insurance plan will safeguard your family from any financial issues in the unfortunate event that you are not around in the future. These basic investments should be sorted before you apply. Not having such basic investments may lead to the home loan application being rejected by the lender on diverse grounds.
  • Selecting the suitable home loan product- Choosing the proper home loan product is hugely essential by all means. You should always compare floating and fixed interest rates and even home loan overdraft based products among other factors. Check out the tenor and go for a smaller one if you can since the interest outgo will be lower although the EMI amount will be high. A longer tenor may be an initial solution since the outgo will be lower every month although the overall interest outgo will be way higher. Floating interest rates may be better if you are looking at prepaying the home loan minus any penalties/charges whenever you have extra cash at your disposal. An overdraft may be suitable for professionals/businessmen who do not have fixed income. They can withdraw based on requirements and avoid paying interest on the amount that has not been utilized.

It all boils down to your decision making powers in the end. Choosing the right home loan is vital and you should have a clear picture of what you can afford and how much to apply for. First ensure that the property is legally in the clear before applying and also have the down payment amount ready. As can be seen, there are multiple factors that may lead to the home loan being rejected even if you have a high credit score. Always be practical, pragmatic and transparent throughout the entire process. Keep the above mentioned factors in mind to increase your chances of home loan approval.

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