Home loan rejected? Here's hope!

A six-point checklist to follow when lenders reject your home loan application.

Photograph: Rajesh Karkera/Rediff.com

Are you dejected because your home loan got rejected? Well, in that case let curiosity get the better of you and not disappointment. So fretting is not going to help. But then what are you supposed to do?

When a home loan provider says ‘no’, read it as ‘try again’. Let there be no place for dejection because your dream home is only an approval away. And how can that be obtained after your loan application is rejected? Well, read on to find out.

1. Dive deep into the details

The letter issued by the lender conveying loan denial would most probably be a generic one. After reading that letter, don’t let the cloud of disappointment blur your thinking. Instead, try to understand the reason of rejection.

If the letter does not specify the same, speak to the concerned officials.

Do not shy away from asking questions until you understand the exact reason for not granting the loan.

This will help you when you reapply.

2. Reduce the loan amount

If the lender has found, upon assessment, that the monthly income is not sufficient to support the loan amount, then the application may get rejected.

In such cases, rework on the amount you want to borrow. By reducing the loan amount the debt servicing ratio can be easily corrected. That will make the lender confident about your loan repayment ability.

3. Pay off existing debts

If you have already availed multiple loans, the chances of your existing monthly payment obligations getting in the way of the home loan approval are high. This basically leads to a high debt income ratio.

This means the debt obligations and repayment commitments at that time are more in comparison to your income. Any more debt obligations will put the lender at risk. Paying off a couple of existing debts is the best alternative to rectify this situation.

4. Work on your CIBIL score

Lenders rely on the CIBIL score and CIBIL report to understand your credit history and credit behaviour. Delay in repayments and defaults have a negative impact on the CIBIL score. A poor score is reason enough for rejection.

In that case, obtain a copy of your CIBIL report. Seek expert advice, if required and work towards improving the CIBIL score.

Ensure timely repayment of existing debts and close open issues, if any.

It may take a while for the revised scores to reflect. So begin damage control now and approach the lender again with a favourable score.

5. Valuation of security

The valuation amount may not be sufficient security for the loan amount in question and that may lead to rejection. However, you must understand that valuation amount sometimes differs from one lender to another, depending on lender policies and the third party evaluating it.

In case, you are certain that the security provided is being undervalued consider checking with another lender. That way, either you shall have the loan approved from the other lender or you would know that additional security needs to be arranged.

6. Adjust and make it work

The main factors at play when it comes to home loan numbers are the loan amount, the rate of interest and the tenure. EMIs are calculated on the basis of these factors.

Now for the EMI to workout according to your income, either the tenure can be increased or the loan amount can be decreased. Keep your mind open to alternatives.

Look out for a new property which can be more affordable and also check with other lenders for better home loans rates.

The key lies in understanding lenders’ requirements and working towards plugging the gaps, if any, at your end. With a bit of patience, determination and financial discipline be rest assured that getting your home loan sanctioned will be a smooth process.

The author is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India's first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.