How to deal with home loan rejections

Finding yourself ineligible for a home loan can be utterly frustrating, heartbreaking, and discouraging., especially in India. Buying a home and being a proud owner are important milestones in the lives of most Indians, and when that dream faces obstacles, it can feel earth-shattering. 

However, denial is not the end of your homeownership journey. If you have been rejected by one bank or even two, there are steps you can take to improve your chances for your next home loan application. 

What are the common causes of home loan rejections?

A home loan rejection typically stems from a mismatch between the applicant’s profile and the lender’s criteria. Here are some common reasons why applications get denied:

1. Low credit score: A score below 650 is often viewed as risky by lenders. Banks, particularly, heavily rely on credit scores to assess the applicant’s creditworthiness. A report by OneScore found that 63% of borrowers in India had credit scores between 300 and 747, indicating challenges when securing loans due to subpar credit scores. Livemint has found that lenders are cautious about approving loans for applicants with scores below 650 because these applicants are considered high-risk borrowers. This reduces their home loan eligibility, especially for unsecured loans. 

2. Unstable income: Irregular or insufficient income can raise concerns about repayment capacity. Usually, lenders prefer applicants with stable employment history. Gaps in employment or frequent job changes reduces approval chances. 

3. High debt-to-income ratio: A high ratio indicates financial strain, reducing approval chances. It makes lenders doubt the applicant’s repayment ability. 

4. Incomplete documentation: Missing or inaccurate documents can halt the approval process.

5. Property issues: Legal disputes, improper property approvals, or incorrect valuations can cause rejection.

6. Loan amount exceeding eligibility: Applying for a loan amount disproportionate to your income can lead to rejection. 

7. Age and loan tenure: Younger applicants might get longer tenures, while older applicants may face restrictions due to shorter career spans. So, your age also plays a factor in getting your application approved. 

According to MarketWatch, loan rejection rates have risen sharply, particularly for applicants with credit scores below 680, due to tighter lending norms.

What do you do if your home loan application is rejected?

Facing rejection can be frustrating, but it’s also an opportunity to re-evaluate and strengthen your application. Also, remember it is only one rejection and there are several other banks and even NBFCs offering home loans. 

Here are the steps to take if your home loan is rejected:

1. Request detailed feedback: Understand why your application was rejected. If possible, request that the bank provide you with detailed feedback. 

2. Enhance your credit score: Take proactive steps to improve your credit score, as most home loan applications get rejected due to subpar credit scores. Pay bills on time, reduce debts, and correct credit report errors.

3. Lower debt obligations: Aim for a manageable debt-to-income ratio by repaying existing loans.

4. Ensure proper documentation: Ask the lender regarding the documents they require with your home loan application. Double-check all required documents before reapplying.

5. Reduce your home loan amount: You can consider reapplying with a reduced home loan amount, especially if your monthly income is not sufficient to handle the burden of a high loan. This will improve your repayment ability and make you a suitable candidate for a home loan. 

6. Save for a large down payment: Sometimes, making a higher down payment helps to get the loan application approved quickly. Also, a larger down payment means borrowing less, which reduces the monthly payments. 

7. Consider alternative Lenders: Explore options beyond conventional banks.

Other proactive steps you can take to improve your approval chances are:

1. Build a strong financial profile: Maintain a good savings record and reduce discretionary expenses.

2. Explore pre-approved loans: Some lenders offer pre-approved home loans to existing customers based on credit history.

3. Consult a financial advisor: Expert guidance can significantly improve your loan eligibility and application strategy.

Remember: Loan rejection doesn’t mark the end of your homeownership dreams. It signals a need for a better strategy and the right financial partner. 

How Credit Dharma turns rejections into approvals

Many homebuyers trust only legacy banks, limiting their options and giving up after a single rejection. Are you one of those? Not to worry because this is where we, Credit Dharma, step in to bridge the gap by connecting applicants with lenders whose policies align with their profiles. 

Our unique approach:

1. Expansive lending network: As home loan experts, we collaborate with top banks and financial institutions across India. So, you are not just looking at legacy banks, such as SBI, PNB, BoB, and HDFC, but also modern banks like IDFC and Ujjivan Small Finance Bank. We also have connections with NBFCs offering lucrative home loan offers. 

2. Customized loan matching: Our financial experts match your profile with suitable lenders. We will work with you to help you find the right bank that fits your profile and requirements. This prevents you from facing loan application rejection. 

3. End-to-end assistance: We offer comprehensive support from application to loan approval, simplifying the seemingly complicated process. 

At Credit Dharma, we are committed to transforming home loan rejections into success stories by providing personalized financial solutions. It is our mission to turn home loan application nightmares into a homebuyer's delight. 

Common myths about home loan rejections

1. Myth: “A rejection from one bank means no other bank will approve me.”

Reality: Different banks have different lending criteria. Rejection by one doesn’t mean others won’t approve your application.

2. Myth: “Only banks offer home loans.” 

Reality: Many Non-Banking Financial Companies (NBFCs) provide competitive home loan options.

3. Myth: “A high salary guarantees approval.” 

Reality: Lenders assess overall financial stability, including credit score, liabilities, and repayment history.

4. Myth: “Multiple applications increase approval chances.” 

Reality: Applying with several lenders simultaneously can harm your credit score and reduce approval chances.

Concluding thoughts 

Home loan rejections can feel like a setback, but with the right guidance and persistence, homeownership remains within reach. By understanding rejection reasons, improving your financial profile, and partnering with experts like Credit Dharma, you can turn ‘no’ into ‘yes.’

Are you ready to achieve your homeownership dreams? Contact Credit Dharma today for expert home loan assistance.