In a recent report from Forbes, over 32% of home loan applicants were denied credit in the financial year 2017. One of the major reasons for this denial is the absence of a perfect credit score in their applications. Individuals seeking a loan for the purchase of property need to fulfill certain requirements that lending institutions specify. Failing to do so can lead to the rejection of your loan application.
These rejections are because of discrepancies in application form or procedure and failing to meet eligibility conditions or producing documents. Therefore, look at these major reasons for the rejection of applications for home loans in the UK.
Low credit score
The credit score is one major determining factor for lending institutions while approving loan applications. An individual with a credit score of 750 and above is assumed to have a decent score. Having such a decent credit score specifies that you have a good credit repayment history and lenders rate you creditworthy to avail the finances.
A credit score defaulter is more likely to have their loan application rejected, and even if they somehow acquire loans, they may be charged with a higher rate of interest. Therefore, try to improve your credit score to acquire a home loan.
Financial agencies hesitate to approve the loan application of candidates that have more financial obligations to meet every month. These financial obligations include the basic cost of living other than certain addendum obligations as well, e.g. active loans, funding of educational expenses of a child, or medical expenses, etc. Lending institutions believe that the borrower will have a hard time repaying the debt and may as well default on it. Thus, the chances of rejection of home loan applications are increased.
Less income and job stability
Monthly income plays a vital role in deciding whether an applicant is suitable to be granted a loan or not. Lenders may not approve a loan for the borrower if the prospective EMI amount is more than 40% of his/her monthly income.
It is beneficial to use a housing loan calculator to determine the EMIs beforehand and know how much loan EMI you can afford to apply for a loan successfully.
Also, stability is one important factor that financial institutions seek as they prefer granting home loans to candidates who are working for an organization for more than 6 months.
The employer profile is evaluated as well because that is the ulterior source of your income. Any business irregularity for the employer can raise questions against your application as well.
Eligibility criteria and documents
Candidates adhering to home loan eligibility criteria are only entitled to avail of such property loans. A candidate falling beyond the prescribed age limit will have their loan applications rejected naturally.
On fulfillment of eligibility conditions, one needs to provide the documents required for a home loan to complete the process further. Documents required for submission are the KYC documents (like the Aadhaar card, Voter ID), PAN card, ITR receipt, bank account statement, salary slip, etc. The absence of any such documents or discrepancies in these can lead to the rejection of your loan application.
Opting for a home loan is a major financial decision that one makes and getting it approved requires the approval of various other factors. Above mentioned are the major reasons why your application may be rejected. Any prospective loan seeker looking for finances for purchase/construction of property needs to abide by these terms to turn these pointers in their favor and find their application approved without hassle.