For many people, the purchasing of a dream home is unavoidably linked to a home loan application. What happens when your loan application is rejected? In most instances, you will be shocked, as you may have a reasonably decent salary and you might also have your down payment ready. In such situations, the lender may have specific reasons to reject your home loan application.
Let us now discuss the six most probable reasons why your home loan application could be rejected.
(1) You might have recently taken up a new job and may not have very high qualifications. Being a fresher and having a new job with a modest salary, the lending institution will not consider your repayment capacity as ideal. In a similar situation, a highly qualified individual with a high paying job will have much better chances of securing a loan.
(2) Your assets and bank statements are also indicative of your financial status. If you have a good bank balance, then it is a strong point in your favor; but in case your account is new and shows minimal savings and bank dealings, then this becomes a negative point for you, and your chances of loan approval are considerably reduced.
In such situations, the lending institution may or may not accept the liability of considering your loan application. Remember that all lenders who are willing to take the risk in such situations may have a very high rate of interest, and may adopt aggressive or unconventional means of recovery, in case of a repayment default.
(3) Your family size and the number of dependents also will give an idea about your financial commitments and your monthly expenses. The other family members’ qualifications and job holdings will also offer considerable weight and increase chances for approval of the loan. Having one income and many dependants will be a strong negative point, while two or more working adults in the family, who could make a joint loan application, would considerably boost the chances for securing a home loan.
(4) Your balance sheet shows fewer assets and more liabilities; this creates a negative picture in the mind of the lender. Financial institutions hesitate to offer loans to individuals who have unhealthy balance sheets.
(5) Your annual income should be at least one-fifth of the loan amount you are requesting, and you should have at least 15-20% of the loan amount ready as down payment. If you have applied for a very large loan and the lender sees that you do not have enough savings or monthly income, then this will have a negative impact on the loan approval.
(6) Other concurrent loans like business loan, home-renovation loan, personal loan or car loan will be considered as liabilities, if they are ongoing, and will considerably reduce your chances of securing a home loan. However, if you have documented proof of having cleared these loans with a good repayment track record, then this will definitely work in your favor.
Thus, home loans can be available to one and all, provided that you keep in mind all the above-mentioned points. It would be advisable to be well grounded and do your home work before applying for a loan. Planning your finances before-hand and going in for a balanced approach regarding down payments would help you to get your loan approved.
Always remember that the lender is also in need of the borrower! Try to clear off other loans and make a clean slate of your liabilities. Also start saving well in advance before applying for a home loan, and improve your bank statements. The habit of regular saving will considerably reduce the stress usually associated with home loan repayments. Remember that your chances for a home loan approval will improve only with time, and with advance planning.
Rizwana A. Mundewadi is a freelance Healing Artist and writer. Using her experience in the last decade she has been writing articles related to art, art investment, feng shui, symbolism, prosperity and good luck and has also added to this list her practical experiences with banking, loans and investments. Simplified facts about home loans can be found at http://homeloans-simplifiedfacts.blogspot.com without the technical jargon associated with this topic.
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