Home Loan Application Rejected? Here's What you Should Do Now

home loan rejected


6 mins read

Last updated on 19th October 2023

When you've spent weeks, or even months, dreaming about your dream house, receiving a home loan rejected notification can be a bitter pill to swallow. But don't be disheartened! With over 40% of home loan applications seeing the red flag each year, you’re certainly not alone in this hurdle.

A majority of these rejections arise from simple misunderstandings, tightened qualification requirements, or minor omissions, which can be rectified. As with many challenges in life, the key to moving forward is understanding the problem and then devising a proactive plan to tackle it. 

In this blog, we will take a closer look into understanding the reasons for rejection of home loan and how you can bounce back stronger.

Suggested read: Home Loan Processing Time

Understanding The Reasons Behind Loan Rejection

Understanding the Why

Hearing the words rejected can be daunting, but don’t let the disappointment cloud your next steps. Getting a detailed explanation from your lender is crucial. They often provide a letter stating home credit loan rejection reasons. Ensure you gather these insights promptly, preferably within 60 days of rejection, to stay ahead of the game.

Common Reasons

Some common home loan rejection reasons include a low credit score, insufficient income, unstable employment, or an unfavorable debt-to-income ratio. Remember, different lenders have different criteria, so a rejection from one doesn’t mean a universal denial.

For instance, if a low credit score is the culprit, spend some time enhancing it. Timely payment of bills, settling outstanding debts, and maintaining a low credit utilization ratio can gradually improve your score. On the other hand, if a documentation mismatch is an issue, ensure that you reapply with thoroughly checked and comprehensive paperwork.

Suggested read: How taking a joint home loan is beneficial for you?

Beyond the Obvious

Sometimes, the reasons for rejection can be less obvious. For instance, the property itself may not meet the lender's criteria due to its age, location, or condition. Or there might be discrepancies in the documentation provided. It's crucial to get clarity on these nuanced reasons to address them effectively.

Strengthening Your Next Application

Credit Checkpoint: Is Your Financial Health in Check?

It is unknown to most people that credit scores play a crucial role in loan approval. This score provides a snapshot of your financial discipline, showcasing your debt-handling prowess. Check your credit report for discrepancies, timely repayments, and any red flags from the past year. If your home loan rejected reason points to credit glitches, strategize on timely repayments to enhance your creditworthiness. Remember, a blank credit history can be just as detrimental as a poor one.

Balancing Act: Debt versus Income

Lenders assess your debt-to-income ratio, and a lower value paints a more favorable picture. This ratio, derived from your monthly debt payments against your income, should ideally be below 40% to sail through most lenders’ checks. If your home loan rejected after pre approval due to a high DTI, consider ways to augment your income or reduce existing debts.

Suggested read: Required Documents for Home Construction Loan in India 2023

Down Payment Dynamics: Raising the Stakes

Down payments can be the make-or-break point in home loan journeys. Another key tip is to opt for a lower loan amount. Most lenders favor Loan-to-Value (LTV) ratios under 80%. If you can't muster the stipulated down payment, consider garnering funds from relatives or hold off until you accumulate enough. Remember, lenders differ in their LTV assessments, so what's unacceptable for one might be feasible for another.

Also, by aiming for a property within a more modest budget or increasing your down payment, you reduce the lender's perceived risk. They'll be more inclined to sanction a loan that constitutes a smaller percentage of the property's total value.

Exploring Alternatives

In some instances, it might be worth considering alternative lenders or loan products. Different lenders have different criteria and risk appetites. Stay updated on lenders' ever-evolving requirements. Just because one lender turned you down doesn't mean others will follow suit. Different lenders have varied risk appetites, so cast a wider net.

Consultant’s Corner: Seek Expert Guidance

Sometimes, the path can seem too complicated to do the process alone. Consider enlisting a financial consultant's expertise to understand what if my home loan is rejected and guide you through the intricate maze of home loan applications.

Fresh Beginnings: Ready to Reapply?

Post-rejection, resist the urge to rush into reapplications. Strengthen your application first. Address the reasons for your previous home loan rejected status, bolster your credit score, adjust your DTI ratio, and ensure you can meet the down payment requirements.


While home loan rejection can be disheartening, it's not the end of your homeownership dreams. By understanding the reasons, addressing them head-on, and exploring alternatives, you can still find your way to the home of your dreams. Remember, the path to homeownership is rarely a straight line, but with perseverance and knowledge, it's always reachable.

FAQs about Loan Application Rejected

When you are rejected for a home loan, the lender will often provide a reason or reasons for the home loan rejection. You'll typically receive an 'adverse action notice' that outlines why the loan was denied. This can be due to factors like a low credit score, high debt-to-income ratio, or issues with the property itself.

There are several reasons for home credit loan rejection reasons

  • Low credit score or poor credit history.
  • High debt-to-income ratio.
  • Insufficient income or unstable employment.
  • Property-related issues, such as its value, condition, or location.
  • Discrepancies in the application or documentation.

To avoid home loan rejection, consider the following:

  • Regularly review and improve your credit score.
  • Ensure stable employment and a steady income.
  • Reduce debts and maintain a low debt-to-income ratio.
  • Provide accurate and complete documentation during the application process.
  • Seek pre-approval to gauge your loan eligibility.

Banks can reject loan applications due to a variety of reasons:

  • The applicant’s creditworthiness or perceived risk.
  • Internal lending policies or criteria not being met.
  • Property evaluations that don't match the loan amount.
  • Incomplete or inaccurate application details.
  • Economic conditions influencing lending practices.

Yes, you can apply again after a loan rejection. However, it's advisable to understand the reasons for the rejection of a home loan before reapplying. Addressing those reasons, whether by improving your credit score, rectifying documentation errors, or choosing a different property, can increase your chances of approval the next time around.

If your loan application is consistently rejected by multiple lenders, it might be due to a severely low credit score, a recent history of defaults, or other major red flags on your credit report. It could also be due to consistent discrepancies in your applications or a mismatch between the loan amount requested and your repayment capacity.

While there's no set time frame, it's wise to wait at least 3-6 months before reapplying, especially if you're working on improving your creditworthiness or addressing other home credit loan rejection reasons. This gives you adequate time to make necessary improvements and increases your chances of approval when you reapply.

Published on 12th October 2023