As a young, upwardly mobile professional working as a finance officer with a top retail company, 35-year-old Megha Agarwal was confident that her home loan application would be cleared within days. However, nearly two months ago, she was turned down.
“I had a decent salary and repaying capacity, so I was baffled. On questioning the decision, I found out that the bank had turned me down because I had failed to pay some of my credit card bills on time,” she says. Unfortunately for Agarwal, this rejection may prompt other banks to take the same decision since it will be considered a red flag in her credit report.
Had she taken the trouble to check her credit rating before applying for the loan, she would have saved herself this trouble. To help potential home loan customers avoid a similar fate, here’s a list of the potential grounds for rejection. Stability quotient According to Pankaaj Maalde, head, financial planning at Apnapaisa.com, the first factor that banks consider is the repayment capacity of the borrower.
“So, if his salary package is not adequate, the loan application will be rejected,” he says. Other assets, such as property or fixed deposits, are also taken into consideration while ascertaining the financial stability of the borrower. Apart from this, banks factor in a customer’s job stability—is his employment of a permanent nature or has he job-hopped too often?
This is the reason most institutions insist on bank statements for at least six months or salary slips for 3-6 months. To be on the safe side, it is advisable to hang on to your job for at least a year if you are planning to apply for a home loan. If you are servicing any other loans, these are also taken into consideration since they will have a bearing on an individual’s repayment capacity.
In other words, if you have a car loan and a personal loan in your name, your current loan eligibility will come down and your home loan application is likely to be rejected. Personal profile According to experts, age and credit history play equally important roles in evaluating loan applications. “The age of the borrower is a crucial factor and most banks ensure that all the EMIs can be paid by him during the earning phase. So, a person who is 45 years old or above will find it difficult to bag a loan with a long tenure, say, for 20 years,” says Maalde.
In such a scenario, you can try seeking a loan with a shorter tenure, provided your salary can handle the higher EMI outgo. “If a borrower has defaulted on servicing previous loans, his current loan application is likely to be rejected,” adds Maalde.
According to him, the Credit Information Bureau of India Limited (Cibil) report is the first port of call for every lender.
The report keeps track of your entire credit. While defaults lead to serious repercussions, a good report—and, hence, a good credit score—can help you land a sweeter loan deal.
“One also needs to be careful before agreeing to act as a guarantor for another person. This is because any default by the original borrower will also affect a guarantor’s score,” cautions Maalde.
The same logic applies while applying for a joint loan. Make sure that your co-borrower has a good credit score before you decide to join hands. Paper trail According to RK Bansal, executive director, IDBI Bank, the title of the property has led to many a loan application being junked.
“The buyer often has no clue as far as the details of the property are concerned. However, the bank exercises due diligence to determine if the title of the property and related documents are in order since these guarantee the legality of a project. If the bank or investigation agency finds any discrepancies in the title, it will reject the loan application,” says Bansal.
Moreover, blacklisted projects and/or developers could also be the reason for loan rejection.
Experts point out that these checks not only safeguard the bank’s interest, but also protect borrowers from legal hassles.
Property detail The last factor to be considered is the age of the property in question. If it was constructed over 30 years ago, banks will be sceptical about furnishing a loan to fund its purchase. In the relatively rare instances where such applications are entertained, the borrower may not bag the entire loan amount sought. This is because the banks would want to limit their exposure given the likelihood of a structural collapse in the future. Finally, make sure you are not impacted by association. If you live with a loan defaulter, be it a tenant, landlord or a family member, chances are that your residential address is on the watchlist.
This could prompt a bank to turn down your loan application. The solution, again, is to check your credit report before applying for a loan. If you are facing this problem, take up the matter with the bank you are keen to take the loan from, and establish that you don’t have a personal relationship with the defaulter. In case a family member is involved, you will need to prove that he/she is not dependent on you.
Credit Sudhaar is India’s first Credit Health management & improvement company whose goal is to help clients to Restore, Enhance and Protect their Credit and make them credit healthy.
Courtesy : Economic Times