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Building a house involves more than simply choosing the perfect land. It often represents the most significant financial transaction an individual will make in their lifetime. It is crucial to arrange the necessary funds for the purchase in a way that minimises the impact on future financial obligations. Home loans provide a solution by allowing individuals to utilise their future income to secure their dream home.

Due to the long-term nature of home loans, lenders have a structured and rigorous approval process to ensure that borrowers can repay the loan without difficulties. It can be disappointing if your home loan application is rejected during this stringent process.

However, there is no need to panic. It is advisable to familiarise yourself with the lender's requirements before applying for a home loan, but even if your application is rejected, all hope is still possible. It is essential to take an objective approach and address the situation accordingly. The first step is to determine the reason for the rejection and carefully work towards resolving it.

Here are some common reasons for the rejection of a home loan application –

1. Poor credit score - Your credit score reflects your past financial performance and your present creditworthiness. If a home loan applicant has a low credit score, it undermines the confidence of lenders in their ability to repay the loan, which in turn impacts their eligibility for a home loan.

2. Error in a credit report - Even if you maintain a good credit history, errors can occur in your credit report, which could lead to the rejection of your home loan application. It is crucial to address and correct any inaccuracies in your credit report to ensure a smooth loan approval process. 

3. Delays in repayment of loans guaranteed by you - While your loan history may be spotless, it is important to remember that the loans you co-sign for your family or friends also impact your credit record. If they fail to repay the loan on time, it can negatively affect your credit score.

4. Lender not comfortable with the employer's profile - Even if you possess a favourable credit history, your employment status and your employer's reputation can also influence your chances of obtaining a home loan. 

5. Incomplete documentation - The approval of a home loan primarily depends on the documentation you submit. If the required documents for a home loan are incomplete or disorganised, it limits the lender's ability to assess your loan application objectively.

6. High level of debt - If a home loan applicant has multiple loans and a significant amount of high-interest debt, it can lead to uncertainty regarding their ability to repay the loan. As a result, they may need help in obtaining a home loan.

7. Failure to obtain a "No dues certificate" from previous lenders - If the seller of the property you intend to buy had previously taken a home loan, they should have obtained a "No Dues Certificate" from the lender upon full repayment. The absence of this certificate could result in the rejection of your home loan application.

Lessons to learn

Here are some key takeaways to maintain a healthy credit score and improve your chances of getting a home loan:

1. Enhance your credit score: Build a track record of timely repayments to achieve a high credit score, increasing your eligibility for a home loan.

2. Review your credit report: Regularly obtain your credit report, check for any errors, and rectify them promptly.

3. Monitor guaranteed loan repayments: Stay informed about loans you have guaranteed to ensure they are repaid on time.

 4. Ensure proper documentation: Pay attention to detail and ensure that your home loan application documents are complete and meet the lender's requirements.

 5. Research lenders' eligibility criteria: Different lenders may have varying criteria, so compare and explore different options before applying for a home loan.

In summary, securing approval for your home loan application largely depends on your actions. The lender assesses your eligibility based on your profile and documentation. Following the aforementioned tips will help you organise your finances and increase the likelihood of a successful home loan application.