Home loan: Steps you should take if banks reject application

Buying a dream home is everyone’s key financial goal. It is hard to fund it without home loan. But, what if banks reject your loan application? There are different ways to collect money for the purpose. We received following query on Money9 Helpline:

I am in need of Rs 40 lakh home loan to buy a flat. A couple of banks have already rejected my loan application due to bad income tax return filing, although my CIBIL score is fine. I run my own business.

My parents have offered me Rs 40 lakh from their savings, but I don’t want to nibble into their retirement corpus. I considered taking loan against their FDs or senior citizen savings scheme because it’ll keep me on toes to pay off loan in time. What are my options?

– Vishal Swaroop

We approached V Swaminathan, CEO, Andromeda and Apnapaisa, to address the query:

Expert view

Usually, a CIBIL score above 750 is the minimum requirement to get your home loan approved without hassles. However, besides CIBIL score there are various other factors that lending institutions take into consideration before approving a loan. Adequate income and proper documents of last three years returns is also an essential requirement. In absence of proper income proofs, financial institutions can reject the loan application.

In such a situation, try and talk to the financial institution and reduce your home loan requirement based on their suggestion. Sometimes this strategy works. The other option could be to add a co-applicant, say your spouse, brother or parents, if they are also earning. In such cases, you can co-apply with other family members and the sum total of all the co-applicants’ incomes will be considered for approval of loan.

If the above options are not available, you can consider taking loans against assets and securities. If your parents are staying in their own house, you could consider taking a loan against their property. Loans against property are available at slightly higher rate than home loans and you can avail them for a longer period.

You can also take loans against securities like shares, mutual funds, and post-office schemes. However, typically, lenders have their own list of companies and mutual funds schemes against which they offer loans. Besides that, the tenure for such loans are very short, say one to three years or maximum five years. Therefore, in most cases it makes more sense in selling the securities instead of taking a loan against it.

In the long haul, it always makes sense to take steps to fix the income tax filing tangle. Find a good financial consultant or CA for help.