Personal Finance

Why your home loan’s been rejected

K.Venkatasubramanian | Updated on January 06, 2019 Published on January 06, 2019

High proportion of salary going towards debt repayment is a red herring for banks

Banks tend to exercise fairly high levels of due diligence before sanctioning home loans, as amounts involved are fairly huge. When you apply for a home loan, your application could get rejected for a variety of reasons, apart from the usual explanation of ‘bad credit score’. We look at a few common as well as some relatively less-highlighted reasons for rejection of home loan applications.

High EMI-to-income ratio

In general, a bank would be comfortable giving a home loan, if the applicant has sufficient surplus after paying his EMI. The rule of thumb is that not more than 35-40 per cent of your net salary should go towards paying your instalments. But if you have many EMIs running in parallel, such as for credit cards, personal and education loans, a large portion of your income would be directed towards repaying these debts. A home loan would thus substantially add to your liabilities — your EMIs may add up to 80-90 per cent of your monthly salary. Such a high proportion of the salary going towards debt repayment is a red herring for banks as there is every chance of a default.

 

 

Frequent job changes

To increase salaries and explore newer options, many youngsters tend to jump jobs frequently.

While such moves can help increase your income, for banks and financial institutions, it is a red flag.

‘A rolling stone gathers no moss’ may be an old adage. But banks view such quick moves negatively, as eventually there could be the possibility of job loss and a potential default.

In general, banks and financial institutions like to see you work for at least three to four years in one organisation to be convinced that you are reasonably settled.

From an individual perspective too, it makes sense to stick around in a place for a few years to get a good grip over your cashflows and manage your surplus well.

Co-applicant’s poor record

This aspect is not that well-highlighted. If you apply jointly for a home loan — usually with your spouse — the debt repayment record must be strong for both of you.

If one of the co-applicants has a poor track record of repayment or has taken too much debt, chances are that the home loan application may be rejected. Even if approved, the amount sanctioned may be lower than what you had applied for.

Financial institutions also approve of only certain type of joint loan applications. Usually, parent-adult son, husband-wife, parent-unmarried adult daughter (provided the house to be purchased is solely in the daughter’s name) and brother-brother relationships are generally accepted. Unfortunately, sister-sister, friend-friend and brother-sister applications are not looked upon favourably.

‘Defaulter’s address’

Now, you may have all the credentials for getting your loan sanctioned — a good credit score, sufficiently high salary, a good repayment history etc. But, unfortunately, if you happen to reside in a place that was previously home to a loan defaulter, your application is likely to be rejected.

This is because banks and financial institutions tend to blacklist a defaulter’s address. Any person who has subsequently moved into the place has to unfortunately face the brunt, despite having the right credentials.

Of course, you can persuade the bank and eventually convince the officials to sanction you the loan. But that would be a time-consuming and tedious process.

Property-related issues

There may be instances when an apartment or property that you wish to buy may not be in the approved projects’ list of your bank. It may also be that the builder may not be approved by your financial institution.

Also, if the targeted apartment or property does not have clear documents such as clean title deeds/parent documents or all the necessary corporation approvals or has deviations from the laid-out plan, such applications are liable for rejection.

Published on January 06, 2019

A letter from the Editor


Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Sincerely,

Support Quality Journalism
This article is closed for comments.
Please Email the Editor
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.