Since a home loan is a long-term commitment, lenders want to be sure you have a stable means of repaying them. They consider various factors before they approve the loan. If you intend to apply for a home loan or your previous home loan have been rejected, here are 7 top reasons why lenders reject your home loan:
1. Your Age
Since home loan tenures are usually up to 30 years, lenders expect that by the time your loan matures, your age should not surpass 70 years. Thus, you can assume that 40 years is the maximum age limit lenders can approve home loans. Hence, if you don’t fit this criteria, your home loan can be rejected. The solution is to use a co-borrower to make you eligible for the home loan. The co-borrower can be your sibling, children or spouse as long as they meet the lender’s age criteria. Also, if you’re under 18, you can’t qualify for a home loan under the law.
2. Too Many Loans
Lenders will not approve your loan when your loan to income ratio exceeds 50% of your income. They will conclude that you’re servicing too many loans at the same time. The solution is to include your children’s or spouse’s income.
3. Poor Credit Score
Lenders use your credit score to assess your credit-worthiness. Bad credit score could be a consequence of defaulting on your credit card bills or even your current loans. A poor credit score is an indication to the lender that you are not likely to pay your home loan. But in some cases, incorrect information supplied to the bureaus by the lender could be the cause of a negative credit score. The solution is to improve your credit score.
4. The Absence of A ‘No Dues Certificates’
For the loans you have closed, you must get a ‘no dues certificate’ from the lenders. If you don’t have one or are yet to obtain it, your home loan application can be rejected.
5. Your Work History
Before lenders can approve you to borrow up to 80% of a property’s value, you must have been employed at your current job for at least 12 months. And if you’re self-employed, you must have been self-employed for at least two years before they can approve your home loan.
6. Lack of Approvals
If local agencies in your area have not approved your property, lenders will hesitate to approve your loan. They assume that you have not adhered to the building guidelines of your area. Also, banks may not approve a loan to buy an old property because it may have a bad resale value. Even when the local authorities have approved your property, banks may still not approve your home loan if the builder is not approved. Thus, check and confirm that the bank approves your builder before applying for a home loan.
7. Not Providing All Relevant Proof and Documents
Include relevant proof and documents when submitting your home loan application. Any contradiction between the information on your documents and your application can have a negative impact on your approval rate. Also, ensure that your signature is consistent on your application forms and any other proof you are going to submit.
Since the process of getting a home loan is usually long, ensure that you’ve thoroughly analyzed your application before you submit it. Don’t rush the application. Instead, create a checklist you can use to prepare for the process. I encourage you to review the reasons above and implement them whenever you are applying for a home loan. Then pat yourself on the back, because your home loan is almost guaranteed to be approved.