How To Avoid These Key Reasons For Rejection Of Home Loan

The truth is, most reasons for rejection of home loan are not about luck-they are about preparation.

Applying for a home loan is one of the biggest financial steps that one can take in life. But sometimes, despite all the excitement, the loan application can get rejected or fall short by maybe a document or two.

We understand there can be nothing worse than seeing your home loan application rejected after weeks of planning, but there is light at the end of the tunnel.

Yes, banks look closely at every detail-from credit score to the right documents-before saying yes. But knowing well in advance everything that could probably go wrong, you can ensure that everything remains in order before applying.

Let's understand what these most common reasons for rejection of home loan are and how you can easily avoid them.

What are home loans & why do they get rejected?

There is no harm in rewinding a little and taking you back to the basics of the home loan process.

A home loan is the financial support that you take from a bank or an NBFC* to buy your dream home. It sounds so simple, right? But these financial institutions have strict checks in place, and unless you earn a green light on all the home loan eligibility check boxes, your home loan cannot go through.

Rejections happen when you do not meet the necessary criteria, such as home loan documents, repayment capacity, and the like. Your role here is to understand why banks reject home loan applications so that you can plan ahead and avoid making common mistakes in the home loan process.

*NBFCs are Non-Banking Financial Companies that offer banking services like loans, credit, investment, and insurance opportunities, but do not hold a banking license.

Bonus: Understanding the home loan process step-by-step

Applying for a home loan may feel challenging in the beginning, but once you understand the flow, the process becomes easier to manage.

Here is a quick breakdown of the steps for you:

1. Application - You need to fill out the form and share your basic details.

2. Eligibility Check - The bank/NBFC will review your income, CIBIL score for home loan, and liabilities.

3. Document Submission - You need to provide all documents required for home loan, like ID proof, income proof, and property papers, and submit them.

4. Verification - Your lender will verify all your information and property details.

5. Sanction & Offer Letter - If eligible, you will receive a sanction letter detailing the loan amount, home loan interest rate, and applicable home loan rates.

6. Agreement & Disbursal - Once you accept the terms, the loan will be disbursed to the seller or builder.

While doing the needful and following the steps is a sure shot way to get a home loan, but to actually getting it passed needs more than just papers. To not end up getting rejected, you must be aware of the common mistakes and avoid them at all costs.

Top reasons for rejection of home loan (and how to avoid them)

1. Low CIBIL Score

Think of your CIBIL score for a home loan as your credit report card that will highlight your performance in terms of loans and repayments. If you have a score below 700, it is often raised as a red flag.

So, what is a good CIBIL score for home loan? Usually, scoring 750+ on your credit report card will give you higher approval chances and better home loan rates.

How to avoid it: Pay bills on time, reduce credit card dues, and avoid multiple loan applications at once to ensure a good CIBIL score for home loan.

2. Insufficient Income Proof

Okay, when applying for a loan, you may look at repayment very casually, but the truth is, banks want to be sure you can repay. Missing or weak income proof isn't a good thing for you when applying for a home loan, and this often leads to home loan rejection.

How to avoid it: Keep salary slips, IT returns, and bank statements ready as documents required for home loan, so that you are prepared at any time it's needed.

3. High Existing Debts

If you are someone who is already juggling multiple EMIs, then it has the potential to reduce your repayment capacity. Why? Because if banks find that you are juggling too many debts at once, then it becomes a reason for rejection of home loan.

How to avoid it: Clear smaller loans first, and use a "how to calculate home loan EMI" tool to check affordability before applying.

4. Property-Related Issues

Sometimes, it's not you but the property itself that causes obstacles in your home loan process. Suppose there are existing disputes, missing approvals, or any other unresolved issues related to the flat. In that case, it can work against your favour even if you have a top score on your home loan eligibility.

How to avoid it: Verify all legal papers, and choose reputed developers offering multiple types of home loans like construction, plot purchase, or balance transfer.

5. Inadequate Down Payment

A low home loan down payment can be a signal for higher risk to banks, and this may affect the processing of your home loan. It is always good to set aside an amount and remain financially prepared for a healthy down payment amount for better management of finances and home ownership.

How to avoid it: Saving early reduces interest burden and helps you negotiate lower home loan rates, and that is why paying at least 20% as a home loan down payment is a good idea.

6. Incorrect Documentation

Many rejections happen because of errors in home loan documents, and trust us when we say, you can mess up this part as a reason for rejection of home loan.

How to avoid it: Double-check everything in your checklist of documents required for home loan-from ID proof to property papers.

7. Unstable Employment History

Frequent job changes can make banks doubt your repayment stability, and that's not a good impression to have. In fact, when applying for a loan, you need to prepare yourself on many fronts.

How to avoid it: Show at least 2-3 years of stable work history before applying for a home loan.

By staying mindful of these common mistakes and applying smart home loan tips, you will be one step closer to turning your dream of owning a home into reality.

Read me:Buying A Home? Ready-to-Move vs. Buildings Under-Construction

Quick home loan tips to improve your approval chances

• Always use a how to check home loan eligibility calculator before applying

• Save for a healthy home loan down payment

• Compare home loan interest and home loan rates across banks

• Question to know: How much home loan can I get based on income and liabilities?

• Explore home loan subsidy schemes if you are a first-time buyer

• Research the home loan process with different lenders

• Don't just check national banks-sometimes, local banks can offer the best home loans in your city.

Most of the common reasons for rejection of home loan are things that you can actually control with a little planning and being aware of all the technicalities of the process.

Getting a home loan shouldn't be just about numbers, documents, or interest rates. It needs to be about turning your dream of owning a home into reality and getting closer to a home loan for support if need be. Stay informed, stay confident, and remember: the right home and the right loan are always worth the wait.

Read me: Your Home Loan Down Payment Guide to Buying Flats in Guwahati

Ready to buy your dream home?

Don't let loan rejection stop you-browse properties from us today and find the perfect home with the proper financing support.

Click here to check our affordable, Vastu-aligned residential properties in the heart of Guwahati-one of the most promising cities in India.

FAQs

1. What is a good CIBIL score for home loan approval?

A score of 750+ is considered ideal.

2. How much home loan can I get on my salary?

Use an EMI calculator and consider 40-50% of your monthly income as the safe repayment limit.

3. What are the basic documents required for home loan?

ID proof, address proof, income proof (ITR/salary slips), bank statements, and property documents.

4. Can I get a home loan with a low CIBIL score?

It's difficult but not impossible, because some banks offer loans at higher home loan rates or ask for guarantors.