Brijesh applied for a home loan to buy his dream house. Though he had checked the lender’s eligibility, his loan application was rejected. Disheartened, he consulted his friend, a financial advisor by profession. His friend advised him to re-apply while suggesting ways to increase the chances of home loan approval.
If you are planning to re-apply for a home loan, here are a few things you must do.
- Identify the cause of rejection
The first step you must do before reapplying is to identify the reason for your loan application rejection. It could be due to incomplete form and documents, poor credit score, legal disputes in the property, insufficient income, high debt-to-income ratio, etc. You can also ask the lender for loan rejection reasons. In most cases, they will be glad to inform you about the same and even guide you with the process of re-application.
- Assess your financial profile
If the reason for rejection is due to financial insufficiency, it would be best to assess your financial profile in the same way as the lenders do while processing your loan application. Check your debt to income ratio and credit utilisation ratio. Also, it would be best to ensure that you have sufficient income and credit score to be eligible for the loan.
- Make rectifications in your credit report
Your creditworthiness can be adversely affected due to discrepancies in your credit report. Before applying for a home loan, you should ensure that you do not have irregularities on your credit report. Check your credit report and ask the credit bureau to rectify them if there are any mistakes.
- Build credit
If your home loan application has been rejected due to poor credit, it would be advisable to defer re-applying until you build credit. Pay all your EMIs on time and avoid applying for loans with multiple lenders at the same time. Keep your credit utilisation ratio below 30%. Also, avoid maximising your credit card limit. A strong credit score will improve the chances ofhome loan approval.
- Increase creditworthiness
Taking a joint home loan can also help you increase your creditworthiness and so would paying a higher down payment. You can also opt for a longer tenure to assure the lender that you would repay in small quantities to avoid default. Alternately, you can also add other sources of income like investment returns, rental income, etc., to improve your home loan eligibility before applying.
If you are re-applying to buy a second home, here are a few things you must do.
- Apply with the existing lender instead of starting the whole process afresh with a new lender.
- Check the lender’s eligibility criteria and ensure that you meet the same
- Use an EMI calculator to ensure that you can repay both loans without default.
- Negotiate with the lender for interest rates and avail a pre-approved loan.
If you wish to re-apply for a home loan, it is advised to do so thoughtfully. You should ensure that you mitigate the reason for the home loan rejection before applying. Make sure to work on your credit score and income. Once you do so, it would help enhance the chances of home loan approval the next time.