When it comes to borrowing funds, a mortgage loan or property loan must be one of the first options to come in mind, isn’t it? A loan against property (LAP) is a preferred form of borrowing because the interest rates are affordable as compared to that of unsecured loans. It also allows you to borrow a big loan amount, as financial institutions can offer up to 70 percent of the property’s current market value. You can pledge a self-owned residential, commercial, or industrial property, which is free of legal problems to obtain the funds.
Below given are factors that can cause rejection of a property loan application.
- Inadequate Property Documents
The original property documents are kept as collateral with the NBFC/bank that disburses the fund. If this document is missing or damaged, then the loan will be rejected. You will have to provide title deeds, building plans, approvals from necessary authorities, along with documents that justify your income, financial position, and identity. The lender will assure if the property title is clear and approved by local authorities, before approving the loan.
- Previous Loan Application Rejected
If your previous loan application was rejected, it will reflect in your credit report. Frequent loan rejection will harm your chances of getting further loans. This is why you must apply for loans only when required and after checking if you fulfil the eligibility criteria as a borrower.
- Borrower’s Age and Credit Score
Your age is a crucial factor in deciding a mortgage loan approval. If you are around your retirement age, then chances of loan application disapproval are greater, than that done in 20’s or 30’s. The younger you are, better are the chances of tenure and loan amount flexibility, since you would have enough years in hand to repay the loan from your income. Similarly, your credit score must be strong enough to convince lenders that you are not a risk-candidate.
- Lack of Proof of Income Tax Returns
Financial institutions require most recent income tax returns proof. Usually, you will have to submit ITRs of the last 3 years. In case there is a lack of such proof, the bank/NBFC can either reject your loan application or reduce loan amount or increase the rate of interest.
- Dissatisfactory Employment History
Job or business stability plays an important role in getting almost any loan approved, including a property loan. If you switch jobs often, or are currently unemployed when applying for the loan, then it will lead to loan application rejection. Make sure that you are employed with the current employer for at least a year or two before applying for LAP.
- Inadequate Income
Tenure for a LAP is usually between 5 years and 15 years. Thus, being a long tenure loan, banks and NBFCs are more careful about the applicant’s income. If you draw low incomes, then you can choose longer tenure loan, than shorter ones so as to be able to pay the monthly instalments. Inadequate income will hamper your chances to loan approval.
- Property Insurance
If you are looking for a LAP, then do get a mortgage insurance done. The insurance makes it easier for the loan to get approved, otherwise the financial institution may find it risky to lend you an amount because there will be no surety of recovering any outstanding amount given damage to the property in unfortunate circumstances. Property insurance will definitely improve the chances of loan approval.
The above-given factors must be studied carefully in order to make a property loan application, which the banks will not reject.