What to do if my home loan application gets rejected?

Buying a home is an important lifetime decision. It not only impacts your family’s sense of security but also impacts your long term financial goals. After all, nobody buys apartments cash down. While you do put in a small margin, nearly 80-85% of the cost of the apartment is financed with home loan.

That mean if your home loan application gets rejected, then you are in a soup. People normally book an apartment and then apply for a home loan. There are two things about a home loan. Firstly, home loan requires you to mortgage the property to the bank till the loan is repaid. Since real estate has traditionally been an appreciating asset, banks have been liberal about giving home loans. Secondly, income level does matter because the bank has to be convinced that you can service the EMI. What should you do if the home loan application gets rejected? That depends on why the home loan application was rejected.

Home loan applications get rejected due to low credit score

Home loan borrowers do not lay enough emphasis on the credit score. Normally, a CIBIL score above 750 is essential to get your home loan approved without hassles. You can check your CIBIL score online at a nominal cost. It is advisable to check your CIBIL score before applying for a home loan. CIBIL credit score can be low for a variety of reasons. Your borrowings may be too high or there may have been EMI defaults in the past or a number of your cheques may have bounced. The first priority here is to improve your credit score.

Quite often, you may have repaid some of your loans but that may not have been updated by the bank. You can get these details updated by CIBIL. You can improve you CIBIL score by sitting down with any of the credit consultants. Ensure that you bring your CIBIL score closer to 750-800 so that loan approvals become a lot smoother.

When home loan gets rejected due to low income

Another reason home loan applications get rejected is if the banker feels that the income of the applicant is insufficient to service the home loan EMI. While there are no hard and fast rules, one thumb rule that banks follow is that the home loan EMI must not be more than 50% of take home pay of the applicant. What do you do in cases when your home loan application gets rejected due to insufficient income?

There are a number of options you have in front of you. Firstly, you can talk to your banker and reduce your home loan requirement based on the suggestion of the banker. Normally, this is good enough. The second option is to opt for a co-applicant if your spouse is also an earning member. In such cases, you can co-apply with your spouse and the sum total of your incomes will be considered. Since both of you will be eligible for Section 24 tax benefits up to Rs.2 lakh each, the bank will be willing to give you a higher limit. The third way to enhance your limit eligibility is to furnish all other sources of income like dividends, interest, and share of HUF etc. In case you have share in other property or assets, you can also mention these details to the bank, with adequate proof, to enhance your limits.

Home loans can also get rejected if monthly commitments are high

This has less to do with income levels and more to do with your existing level of loan commitments. If you have too many loans or your current EMI outflows are too high, then your home loan application can get rejected. The best way is to sit with your banker and consolidate your loans. Where you have liquidity available, try and close loans. Reduce your credit card outstanding and look to reduce your EMI by consolidating multiple loans into a single loan. Normally, such actions are good enough to get your home loan approved.

If home titles are not clear, bank may reject the home loan application

Ownership titles are a major challenge in most Indian states. Real estate titles are a state subject and different states have different rules. Banks normally get the titles of the property and the link documents legally vetted. If the legal team of the bank is unwilling to approve the title deeds, the loan may be rejected.

Normally, such faulty titles can be rectified and your builder will be more than willing to furnish necessary documents. One way to overcome this issue is to approach banks that offer pre-approved loans for select projects. In such cases, the title deeds are verified well in advance. In a nutshell, a bit of homework like checking your credit score, regulating your EMI levels and making co-applications can help you overcome most home loan rejections.