Denied a home loan? Here's why it happens and what you can do about it

It is important to note that, applying for a home loan is a big milestone towards the realisation of the dream of the homeowner. However, the home loan application can be rejected due to one or two reasons, and the applicants would get confused, having no idea what they are expected to do next.

It is crucial to note and follow that as of March 2025, home loan interest rates in India continue to remain competitive, with several lenders offering attractive options. For instance, some public sector banks are offering rates as low as 8.1% to 8.15% per annum, while major private banks like HDFC and ICICI start at 8.75% per annum.

Several reasons due to which home loans are rejected are: low credit scores, high debt-to-income ratio, inconsistent employment history, insufficient income, no proper personal loan history etc. By knowing why the application got rejected and what you need to do in return towards successfully securing a home loan is crucial to understand, and it can be made easier and more seamless in the future by following several important points:

Common reasons for home loan rejection

• Low credit rating: A low credit rating means that the lenders are at greater risk, and it is nearly impossible to get a home loan. Now and then check your credit report, credit score and correct the mistakes or wrong entries, if any, in the past. It will improve your rating with the lapse of time.
• Builder or property not authorised: Banks approve all builders or properties. Ensure the builder and property you are choosing are part of the approved list of lenders to avoid rejection.
• Insecure work history: Banks like to receive applicants with secured work history. Constant changes in employer or oscillating income might lead to rejection.
• Inadequate documentation: Incomplete documents, wrongly filled forms may result in a rejection or delay your application. Make sure all the necessary documents are properly filled.
• Value issues: When there is an under-valuation of the property, the lenders may release less than you are requesting or even decline the application.

What should you do next?

When your home loan application is rejected, the following are some actions you can take:

• Verify and improve your credit score: Correct any errors in your credit report and increase your score by paying bills and debt on time.
• Verify eligibility requirements: Reconfirm that you meet the lender's requirements before applying again. Check for terms, conditions, interest rates offered etc before applying. 
• Apply to another bank or financial institution: Not all lenders are created equal. Apply to a different bank or financial institution.
• Gather complete documents: Have all documents required to avoid delay or rejection.
• Reach out to the customer support team: If in doubt, reach out to the customer support team of your respective financial institution.

Keeping these reasons in mind and taking such proactive measures, you will be able to maximise your chances of getting a home loan in the future. Compare and contrast different lenders always so that you end up with the best suited home loan according to your financial condition.

(Note: Raising a loan comes with its own risks. So, due caution is advised)