What is a home loan? Why is a home loan Rejected?

A home loan is a form of mortgage loan that allows people to borrow money from a financial organization to buy their ideal home. The borrowed funds are subsequently repaid over time in small EMIs, plus any relevant interest charges. A home loan, also known as a housing loan, is a secured loan received by pledging the house property to the lender as collateral. Lenders such as the Bank of Maharashtra offer up to 90% of the value of the property, with the remaining amount paid beforehand as a down payment by the borrower. 

Features of Home loan

Higher loan amount

The lender may give up to 20 times your yearly income (annual take-home earnings), depending on your eligibility and repayment capabilities. You can use an eligibility calculator to determine the maximum home loan you are eligible for based on your financial situation.

Low-Interest Rate

The interest rate on a home loan is much lower than on other types of loans, making it an economical financing choice for home purchases and development. We can calculate the interest using a home loan calculator.

Long repayment tenure

A home loan has a long payback period that might last anywhere from 25 to 30 years, depending on the lender. This makes it easier to pay off your mortgage without jeopardizing your financial security.

Tax Benefits

The opportunity to deduct interest and principal repayments from taxable income is the major benefit of a house loan. Section 80C allows you to claim up to Rs 1.5 lakh as a principal repayment. Section 24B allows you to return up to Rs 2 lakh in interest. Sections 80EE and 80EEA allow you to return up to Rs 2 lakh in interest in rare situations. Section 80C allows you to deduct up to Rs 1.5 lakh in stamp duty expenses.

Multiple Use

A home loan can be used for the purchase of a new home, the construction of a new home, or the extension of an existing home, giving borrowers a lot of choices.

• To buy a house or flat that is now being built or has previously been built.
• to buy a plot of land on which to construct a home
• constructing a residence on land you already own
• Renovations, additions, and repairs to existing homes
• Purchase both a standalone house and the property.

No prepayment penalty

There is no prepayment penalty if you have chosen a floating interest rate on your home loan. This allows you to pay off your home loan account far sooner than the term ends, saving you a lot of money on interest next.

How home loan works

Taking up a home loan is a huge step because you’ll have to set aside a portion of your income for long-term repayments. You must first grasp how a house loan works before applying for one.
A home loan is obtained by providing the lender with collateral in the form of purchased or developed real estate. Until all of your payments are made, the lender retains ownership of your home.

After successfully repaying a house loan, the lender relinquishes ownership of the property and returns all original documentation at the end of the loan term.

How to get a home loan

To receive a home loan, the first step is to compare and research lenders based on your needs.

Once you’ve decided on a lender, you may apply for a house loan by meeting all of the lender’s eligibility requirements and submitting the required documentation.

Eligibility Criteria

• Must be an Indian resident
• At the time of loan maturity, you must be between the ages of 21 and 65.
• A CIBIL score of at least 700 is required.
• Must meet the minimum income requirements and have a steady source of income.

You can use the home loan eligibility calculator to figure out how much you can borrow

Documents Required

• Proof of identity and residence
• Income proof
• PAN and KYC documents
• Past 6 months’ bank statements
• Documents related to the property you’d like to buy

Why is a home loan rejected?

Home loans might assist you in realizing your ambition of owning a home. However, if your loan application is turned down, it can be extremely frustrating. Rejection can put your ambition of owning a home on hold. If your loan application is denied, though, not everything is lost. It simply implies that you must resolve a few issues before applying for a home loan again.

A home loan application can be rejected for a variety of reasons. Here are some of the most prevalent reasons behind this, as well as what you can do about them.

Low credit score

After reviewing your credit history, a credit agency assigns you a credit score. Lenders prefer a credit score of at least 750. Anything below this mark could suggest that you’ve been squandering your credit.

What can you do? Maintaining a decent credit score can be as simple as paying your bills on time. Also, if you see any inaccuracies on your credit report, have them corrected as soon as possible.

Unstable Income

Lenders appreciate those who have a steady income. If you change jobs frequently or work in seasonal jobs, your loan application may be turned down. Banks typically examine your bank statements, employment records, and other financial documents to determine your income stability.

What Can You Do? A reliable source of income can help you even the odds. If your job doesn’t provide you with a consistent income, consider including your spouse as a co-applicant with a more consistent salary.

EMI to Income ratio

Lenders will accept an EMI of up to 50% of your monthly income. This means that the total EMIs for all active loans cannot be more than 50%. As a result, if you already have active loans and your EMI to income ratio surpasses 50% after calculating the new EMI, your house loan eligibility may be jeopardized.

What can you do? Before asking for a new loan, always pay off any outstanding debts. This can help you significantly boost your eligibility.

Incomplete property document

The mortgage of the property documents is used to secure the home loan. If your home loan documentation is missing, your application will be turned down.

What can you do? Before applying for a house loan, double-check that all of the property papers are in order.

Age

Because a home loan is for the long term, having age on your side can help you get approved.

What can you do? To boost your chances, apply for a home loan when you’re young, or consider adding a co-applicant.