The rejection clause

S.C. Dhall

Q.Why do banks withhold or cancel home loans after issuing the sanction letter?  — Narinder kumar sethi

A.One point that you should be aware of is that the mere sanction of a loan by a bank is not the final word on loan disbursement

The bank can withhold your loan disbursement, reduce the sanctioned amount, or sometimes even reject it totally in the post-sanction phase.

In such situations, many loan applicants feel embittered as they believe that a loan sanction letter had  concluded the loan application process successfully. 

The reasons for this can be many. Some of these are: 

Low technical value of your property: You may assume that the price of your property is final by comparing it with the price of a nearby property or by the amount the builder or seller quotes. However, banks are not bound by these rates or quotes. They have their in-house team of experts who do their own property valuation based on various factors like the age of the building, the quality of construction, market value, locality, accessibility to the plot, etc, to come to a final value. Sometimes, banks conclude that the total valuation of the property is lower than the amount sanctioned by them. In such a scenario, they have no option but to either reduce the sanctioned amount or withhold the loan disbursement.

Legal dispute concerning the property documents:   Banks offer loans for properties with a clean legal title. Sometimes, if the bank realises after sanctioning that the property has a pending legal dispute or a legal attachment to it, that can be a reason for loan rejection. The bank’s legal team traces all associated documents of your property in detail. If your property is found to have any legal issues or complications like a minor right, stake of other financial institutions, heirs missing, etc., associated with the title deed or with its prior title deeds, they are likely to reject the loan or hold it.

Late negative field investigation report: Banks do a physical background check on every loan applicant.

This includes checking your personal and professional details and it is often carried out by professional external agencies. Sometimes, the field investigation report reaches the bank late, after the loan sanction letter has been issued. 

So, if the bank finds out that the field investigation report for you is negative due to any reason, they have all rights to cancel the loan. To avoid such a situation, make sure that you apply for a loan with all the right details and without hiding any financial or personal obligations as sought by the bank.

Processing fee cheque bounce: Processing fee is an important component for your home loan and is usually paid through cheque.  Banks charge between 0.5 and 1 per cent of the loan amount as processing fee on an average. Processing fee charges are not refunded even if your loan gets rejected. But sometimes, the fee cheque goes for collection after loan sanctioning. If your processing fee cheque bounces for any reason, your loan stands a high chance of being rejected. This is because the bank loses its confidence in you as a trustworthy borrower for future repayments. So, plan the payment for processing fee charges and ensure that your savings account has sufficient balance.

Buying property from a non-approved builder:  The builder involved in your property purchase also plays a significant place for your loan approval.

If the bank finds out that the builder is either blacklisted or non-approved with the bank, it can withhold your loan disbursement. Always check the credibility of the builder before you apply for a home loan. 

Home loans may have become simpler and easier to get, but do not always rely on your loan sanction letter. Ensure you take the above precautions so that loan disbursements are smooth and timely.