The bank refused to give a home loan. Don’t worry… These 7 smart ways will get you approval quickly.
Home loan rejected? Don’t worry! Even after this, there are many ways that can turn the bank’s no into a yes. Here are 7 smart ways, after adopting which your loan will be approved quickly.
Everyone dreams of having a house, and the biggest step to fulfill this dream is home loan. But imagine, you go to the bank with full preparation and your home loan application gets rejected! Surely your mood will get spoiled. But this does not close all your doors. Bank’s refusal is not the end of your dream, but an opportunity to improve your shortcomings. Here know about some smart ways, by adopting which you can turn the bank’s ‘no’ into ‘yes’ and get your home loan approved quickly.
1. One and one make eleven: Apply with a co-applicant
If your income is low or your CIBIL score is not up to expectations, then adding a co-applicant is one of the most effective ways instead of applying for a loan alone. You can make your spouse, parents or children co-applicants. When the income of two people is added, the ability to repay the loan increases. If your co-applicant's credit score and income are good, then the bank's confidence increases and the chances of loan approval increase manifold.
2. Increase down payment, reduce loan amount
The bank may not be comfortable giving you up to 90% loan for the property you are buying. The bank always looks at the loan-to-value (LTV) ratio, i.e. how much percentage of the property value is it giving as a loan. If you increase the down payment amount and ask for a smaller loan amount from the bank, the bank's risk is reduced. A lower loan amount means a lower EMI, which makes your loan repayment capacity look better and the bank easily approves the loan.
3. Boost Your CIBIL Score
The most common reason for home loan rejection is a poor CIBIL score. A score above 750 is considered good. If your score is low, work on improving it. Pay all your existing EMIs and credit card bills on time. Pay off old small loans and get them fixed. Check your credit report and if there are any mistakes, get them corrected. Once your score improves, you can apply again after a few months.
4. Improve Your FOIR
The bank checks your Fixed Obligation to Income Ratio (FOIR) before giving a loan. This means how much of your monthly income is going towards the existing EMI, house rent or other liabilities. If this ratio is more than 50%, then the bank feels that you will not be able to bear the burden of new EMI. Therefore, before applying for a new loan, try to repay small loans like personal loan or credit card so that your FOIR can improve.
5. Increase the loan tenure (Opt for a Longer Tenure)
If your loan is getting rejected due to low monthly income, then you can consider increasing your income or opt for increasing the loan repayment tenure. Longer tenure means lower EMI. This will bring your monthly installment within the scope of your income and the bank will be convinced that you can easily repay the loan. However, note that in the long term you have to pay more interest overall.
6. Leverage Your Banking Relationship
It is always beneficial to apply for a home loan in the bank where you have a salary account, savings account or fixed deposit (FD). The bank has a record of all your financial transactions, which makes it easy to assess your credibility. The bank easily gives a loan to an existing and good customer because it trusts your financial position.
7. Knock on another door: Apply at an NBFC
If you are unable to get a loan from a big bank even after all efforts, then you can apply to a non-banking financial company (NBFC). The terms and conditions of NBFC are a little flexible compared to banks and they give loans even on low credit scores. However, it is important to note that NBFC interest rates are usually slightly higher than banks.
Home Loan Rejection: Problems and Solutions
| Problem | Solution |
|---|---|
| Low or unstable income | Apply for a joint loan with a co-applicant. |
| Poor CIBIL score (below 750) | Pay old EMIs/bills on time and improve your credit score. |
| Doubt about repayment ability (High FOIR) | Repay small existing loans to reduce monthly liabilities. |
| High risk perceived by bank (High LTV) | Increase your down payment and apply for a lower loan amount. |
| High burden of monthly EMI | Opt for a longer loan repayment tenure. |
| Unable to gain bank's trust | Apply through your existing bank where you hold an account. |
| Repeated rejections from banks | Approach an NBFC or a housing finance company. |
FAQs
1. Why do banks usually reject home loans?
The most common reasons include poor CIBIL score, low or unstable income, incomplete documentation, high FOIR, and lack of property papers.
2. What should be a good CIBIL score for a home loan?
Generally, a CIBIL score of 750 or above is considered very good for home loan approval.
3. After how many days can you reapply for a loan rejection?
This depends on the reason for the rejection. If it is due to CIBIL score, then it is better to apply after 3-6 months after improving the score. If there was a lack of documentation, then you can also apply immediately after completing it.
4. Is there any difference between bank and NBFC home loans?
Yes, banks follow strict RBI rules and have lower interest rates, but they are strict about eligibility. On the other hand, NBFC rules are a little flexible and they give loans even with low scores, but their interest rates are often higher than banks.
