After the process of searching for the home and finalizing the dream house, you might turn cold after the rejection of the loan application. Mortgage loans are consisting of huge amount of money and time and lender don’t want to take risks. Lenders tends to have long list of conditions and reasons. Understanding the reasons for denial and correcting it will increase the chances of approval.
Let’s understand in brief a few of the basic reasons for getting turned down for mortgage and learn more about what you can do to ensure the loan approval.
A low credit score can lead to a sure shot rejection of the application. A low credit score indicates delays in payment in case of a loan or have not performed well or non-payments in EMIs. It becomes one of the biggest reasons for rejection for home loan applications.
The score ranges from 300 to 900. It is advisable to have a score above 750.
A stable job is a big positive for any lender. Recent job changes may raise doubt about the repayment of the EMIs. When you are getting a stable salary. You must wait to apply for the home loan application till you’ve been in your job for at least a few months. Lenders or banks prefer the applications of a person who has had a job in the same company for a minimum of a year. having a steady job will increase your chances of approval.
The location of the property is an important factor for any lender. Each lender has its own defined rules within which they finance. If the property is beyond the distance, the application would be rejected. The age of the property is also a key criterion for a lender. Hence, it is always better to check with the concerned lender regarding their policy.
The lenders provide a loan based on the concept of the Loan to Value ratio (LTV). Generally, LTV ranges from 70% to 90% of the value of the property. You should always buy the property as per the current market values and keeping in mind the independent valuation done by the lender.
You should make sure that the title of the property is clear and marketable. Also, there are no issues in the approval for the property from the concerned authorities.
If your Debt to income ratio is high, it is an indication that you might not be able to afford the mortgages. It is good to keep the DTI ratio as below as possible, preferably below 35%. If you have a lot of debt, you should start paying it down before applying. By eliminating your debt, you’ll prove to a potential lender that you are capable to pay a mortgage. Lenders use the LTI ratio to determine the repaying capacity for home loans.
To calculate your ratio, divide your monthly debt by your gross income. Let suppose, if your income before taxes is Rs. 40,000, and your monthly debt is Rs. 12,000 per month, your DTI would be 30% (12000/40000=0.3).
It is advisable to keep the DTI ratio between 21% to 35%. Before you apply for a mortgage, you should calculate your RTI ratio.
Putting the huge amount of money for a down payment shows the lenders that you are serious about it, making you more likely to repay the mortgage. The bigger the down payment, the better the chances you have of being approved. Lenders treat a higher down payment as the indicator of the borrower’s ability. This increases the creditworthiness of the buyer.
The above are some of the reasons for the rejection of the home loan application. In the end, it is your responsibility to keep your records clear and does the proper homework. Ensure all the paperwork to be up to date and as stated by the lenders before approaching the lender for a home loan application, so the chances become very low.
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