These days, most home buyers avail of a home loan to help them arrange the money needed to buy a home. Home loans are low-interest rate loans that come with a long repayment period. Further, they also make borrowers eligible for tax benefits which help borrowers save a significant sum each financial year. However, the home loan market has been growing at a CAGR of 15% per annum. The number of home loan applications have also increased considerably over the past few years and with that have also increased cases of home loan application rejection.
Millions of home loan applications get rejected each year. This happens because home loan applicants do not familiarise themselves with the home loan application process and the factors that affect home loan eligibility. This article talks about how to overcome common home loan application challenges and get approved for a home loan quickly.
Home Loan Application Challenges
1. Home Loan Application Getting Rejected
The biggest challenge is obviously a person’s home loan application getting rejected. A lender can reject your loan application for many different reasons. To start with, many home loan applications get rejected because the applicant does not meet the lender’s eligibility requirements.
All lenders have strict eligibility requirements or qualifying criteria. These qualifying criteria revolve around a borrower’s age, income, job stability, etc. To be able to avail of a home loan, you must meet these qualifying criteria. If you don’t, your home loan application will get rejected. An important qualifying criterion is your credit score. Lenders require borrowers to have a credit score of 750 to be eligible for a loan. A credit score between 700 and 750 may get you approved for a loan, but a credit score below 700 will certainly lead to home loan application rejection. So, if you don’t want your home loan application to get rejected, the first thing you must do is check your lender’s eligibility requirements and move ahead with the application only if you meet all the qualifying criteria.
2. Not Getting Your Desired Loan Amount
Lenders decide the loan amount to be sanctioned to a borrower after considering several considerations, such as the applicant’s income, their income and job stability and their credit score. Borrowers with a stable income and job and having a high credit score easily get approved for the loan amount they desire. On the other hand, borrowers having an unstable income or an unstable job or a low credit score find it difficult to get approved for a home loan.
Home loan applicants planning to apply for a home loan must use a home loan eligibility calculator to work out the loan amount they can borrow. This way, they would already know the maximum loan amount they can get and not be in for any surprises later. Further, when a borrower applies for a loan amount they are eligible for, chances of getting approved for the loan and the loan amount they have applied for increased considerably.
3. Not Being Able to Avail of a Low Home Loan Interest Rate
Yet another challenge that home loan borrowers face is not getting the desired rate of interest on their home loan. All home loan borrowers want to avail of the lowest interest rate possible as a low interest rates help keep EMIs affordable and reduce the cost of borrowing the loan. However, lenders decide the interest rate to be offered to a borrower after considering their credit score, income and income and job stability. If you have been unable to avail of the home loan interest rate you want, chances are you either have a low credit score or your income is not good enough to support the loan amount you wish to borrow. To avail of the lowest home loan interest rate deal, make sure your credit score is 750 or above and you have applied for a loan you qualify for. Also, try and not switch jobs for a while if you plan on availing of a loan in near future. This will help you get a good home loan interest rate deal.
4. Incomplete Documentation
Many times, loan applications get rejected because of incomplete documentation. Home loans are a huge commitment — these loans also involve a hefty sum. Thus, lenders want to make sure they have everything they would need to gauge an applicant’s repayment capacity. Other than KYC, address and income-proof documents, your lender will also ask you to submit property documents. You will also need to submit a no-objection certificate from local authorities as well as title deeds. Inability to submit any of the required documents will lead to your loan application getting rejected.
5. Not Having Enough Saved for Down Payment
Home buyers who want to avail of a home loan must save enough money to clear the down payment. Lenders ask for down payment to make sure the borrower has some equity in the home. Lenders sanction up to 85% of a property’s value as a loan. Lenders are permitted to keep the loan amount higher in the case of low-value loans. In the case of high-value homes, lenders generally sanction only up to 30% of a home’s value as a loan. Home loan borrowers must arrange the remaining amount and this amount is known as down payment. Many borrowers who wish to avail of a home loan make the mistake of not saving enough money to clear the down payment. There is only one solution to this problem: once you decide to buy a home, start saving up for the down payment and apply only after you have saved up enough money.
Final Words
These are some of the most common problems that home loan applicants face when applying for a home loan. By making oneself aware of these problems and their solutions, home loan applicants can smoothen the process of applying and getting approved for a home loan.
Also Read: Why KYC compliance in Banking needs to be revisited?
