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Home buying is more than just finding the right location. It has to be one of the biggest transactions you can make in your life, and the arrangement of funds rules the game here. You have to look carefully into your other financial priorities before you commit to a loan. Since it can range from anywhere from ten to thirty years, so you need a disciplined and well-secured earning base to repay it.
Remember, your lenders are great critics and wouldn’t grant a loan that easily. Their application process is stringent and failing to fulfil any of their terms and conditions is a straight failure for your hopes. But instead of panicking about it, you should familiarize yourself with any specific requirement your lender has and do whatever is needed to rectify the situation. Usually, the reasons for home loan rejection can differ from lender to lender, but the most common ones can be any of these –
- Poor Credit Records
No matter what type of loan you apply for, your credit history is the first thing that lenders evaluate. That is for assessing your credibility and ability to repay the loan. So, you see mortgage brokers always stressing on high scores to become eligible for a home loan. There should be no default on your credit card bills or other existing EMIs. To give the best impression, keep your repayment behavior consistent.
- Unstable Employment
As mentioned already, a home loan is a long-term commitment. You cannot plan to take risks with your job changes or take frequent breaks between employments or else it can impact your home loan eligibility. Most lenders expect applicants to be with their employers for at least three years before sending their loan applications.
- Applicant’s Age
If you are recently employed or are on the other end – towards retirement, there are higher possibilities of your loan getting rejected. Home loan tenure can go up to thirty years, so lenders want the applicants’ age to be around 60 at the time of maturity. If you don’t meet that parameter or are newly employed at a low income, you may not be considered capable of repaying the loan.
- High Debt-to-Income Ratio
Debt-to-Income ratio (DTI) compares your monthly debt expenses to your monthly gross income. You add up all your payments and expenses and divide it by your monthly gross income to calculate it. A ratio less that is 36% or less is ideal. If yours exceed 50%, you may not qualify for a home loan. You may first have to improve your situation by making extra payments toward your debt and postponing large purchases.
- Insufficient Documentation
For a successful home purchase, all your essential documents must be in place. You have to furnish all the paperwork mentioned in the application form, failing which your home loan process may be halted. Besides, you got to be extra cautious about the information you give, be as clear and authentic as possible. Don’t play around or it can affect your approval rate.