Sometimes, an application for a loan against property might get rejected. Therefore, a prospective borrower needs to know the reasons behind the rejection.
A loan against property (LAP) is typically taken to start or expand a business. Did you know that the value of the market stands at Rs. 2.5 lakh crore? Imagine the number of people reaching out to financial institutions for LAP loans. With an increased number of people applying for loans, the rules and regulations are becoming more stringent than ever before. It is quite easy to miss out on a few important steps while applying for a loan, thus leading to rejection. One of the major mistakes is not submitting loan against property documents required
Let us look at some of the reasons for Loan application rejection
Quite a few borrowers apply for loans against inherited properties. Banks will require proof of ownership to approve the loan. A title or deed is a necessary document which many borrowers fail to submit, as their father or grandfather may have misplaced the original deed.
Since title or deed is a loan against property document required by the bank, apply for a new deed and make sure to have clear ownership. Remember, you will not get a loan against ‘patta’ and doing so would weaken your eligibility for a loan against property. The bank would immediately reject such applications.
Deviations from original plans
Many people add rooms and annexes in violation of the original plan or without getting the correct approval from Housing authorities. Discrepancies in approved and actual construction could lead to the rejection of the loan. Keep in mind, the rule is applicable primarily for independent houses.
Income Tax Filed For Only One Year
Self-employed individuals should submit income tax returns for the last three years. Failing to do so leads to rejection. It is mandatory in the case of not only taking a loan against property but a housing loan. However, they might make an exception if the bank statement shows regular income.
Unauthorized builder or project
Most lenders approve loan against property in India only if an authorized builder has constructed the property. Therefore, find a lender who would have authorized the builder to construct the home you are inhabiting.
A bad credit history
One of the factors that play a critical role in securing any loan is credit history. Lenders depend on the credit bureau to obtain the credit history of a loan applicant. If the credit score is low, then the lender wouldn’t be inclined to process the LAP. Lenders prefer lending to borrowers who have a higher credit history as this shows their inclination and ability to pay off debts within the stipulated period.
Previous loan application has been rejected
As written earlier, banks rely on credit bureaus to track the credit history of borrowers. Banks usually store details of all applications in their database irrespective of whether they have been accepted or rejected. Hence it is easy for banks to discover whether a prospective borrower’s previous loan application has been rejected. In such a case, the chances of LAP getting rejected are higher. Hence, always know the eligibility, documents required and other important factors before applying for a loan against property.