Not all home loan applications get approved. There are applications that may get rejected by the banks/NBFCs. The reason for rejection may vary from case to case. However, we have observed the following 14 reasons why a home loan may get rejected.
1) Income Eligibility Of the borrower.
Where the income of the borrower does not suffice the required loan amount because of the insufficient income drawn by the borrower or may be due to high loan obligations. Income considered for eligibility can be the combined income of all the co-applicants.
2) Age of the borrower.
The age of the borrower at the time of loan application should not be equal to more than 60 years for the salaried applicant and 65 years for self-employed. Additionally a minor cannot be a co-applicant for the loan.
3) A low CIBIL score of the borrower.
A borrower’s CIBIL score which is less than the average CIBIL score of 720. Reasons for the low CREDIT score are too many cheque bounces, EMI bounces, loan default, the overdue amount on loans, the outstanding unpaid amount on credit cards, poor repayment track record, etc.
4) A low CIBIL score of the co-borrower.
Irrespective of the good credit score of the borrower, the poor and low CIBIL score of the co-applicant can also reject the loan application of the borrower. An average CIBIL score of 750 and above is considered as a good CIBIL score.
5) Negative profile of the borrower.
Banks have prescribed a list of the negative profile of the borrower. Such a list differs from bank to bank and NBFCs. Examples of negative profiles can be - a borrower who is a stockbroker, chit fund manager, scrap businessman, film industry artist, politician, bar owner, etc.
6) Blacklisted property.
Either the property builder falls into the blacklisted list of the banks or the location of the property is in the negative area list of the banks which they have classified into a blacklisted list.
7) Non-funding for NRI working in certain specific countries. A list of such countries is listed by the bank which includes countries like Nigeria, Pakistan, Bhutan, Afghanistan, etc.
8) FI visit negative for the borrower & co-borrower.
The first information i.e. the FI is the physical verification that is arranged at both loan borrower's and co-borrower's given residential and office addresses to confirm the facts mentioned in the application.
9) LTV (Loan to value) factor in the property.
RBI has guidelines on LTV funding by bank/NBFCs in home loan which is up to 75- 90% of the property market value. In other words, the loan eligibility of the borrower is subject to the lower of the two i.e. the income eligibility & the LTV funding on the market value of the property.
10) Property legal issue.
A legal issue in property such as no clear title, title flow query, suit filed on the property, registration & stamp duty not paid, misplaced property papers, etc.
11) Property technical issue.
A technical is the physical inspection of the property. A technical issue in the property is described as illegal construction, illegal extensions having no permissions granted from the authorities, an age limit of the building + having no structural audit report, an old building declared as unsafe for the tenants to reside, etc.
12) Loan End-Use not justified.
Borrower's End-Use for borrowing the funds must be justifiable. The funds cannot be used for trading and investments in stock markets, mutual funds, business start-ups, chawl property purchases, etc. A valid end-use example can be – fund utilization for daughter’s marriage, for home renovation & repairs, children education, Business expansion, etc.
Documents may be required to justify the purpose of end-use, like a copy of the agreement for the borrower purchasing a pagdi property or making a plot investment.
13) Processing fees cheque bounce.
The processing fee in the home loan gets deducted upfront from the borrower's account unlike in personal loans where it gets adjusted from the loan amount itself. If the borrower fails to maintain the sufficient balance for the deduction of the processing fees charges and also doesn’t have equivalent balance in any of his other bank accounts, the home loan application gets definitely rejected.
14) Multiple funding.
Banks have guidelines set for the multiple funding of properties purchased by the borrower under which a borrower's application may get rejected.