Criteria used by banks to assess mortgage loan applications

Buying a dream home is an aspiration that most people want to achieve in their lifetime. The process involves a huge commitment of time, energy and, most importantly, funds. To make an investment on such a large scale, proper research and preparation must be done. Home loans help make such an investment and in doing so make the dream of owning a home for many a reality. Therefore, it is important to understand how lending institutions assess mortgage loan applications and what is needed to ensure easy access to the loan.


The first thing a lending institution asks you for is a document detailing the house you are looking to buy. The institution wants to know if the property you have chosen has all the required permissions from the local government. Once this is established, you will need to provide proof of income, salary slips of at least six months, income tax documents for the past three years and other details such as date of birth, current address. , PAN, bank statements, among others. Make a checklist of required documents and keep their copies ready with the originals.

Income / debt ratio

It is important that you declare whether you are paying EMI (equivalent monthly payments) on any other loan at the time of application. This is one of the deciding factors for your loan application. To understand how a loan application is reviewed, here are two scenarios.

Two people, Ashok Kumar and Manish Sharma, ask for a mortgage of Rs 30 lakh each. In checking the status of their loan, suppose they both cut the credit score as required by the lending institution for granting a home loan. Typically, this is how the lender will assess Ashok’s claim:

Suppose Ashok’s monthly income is Rs 1 lakh. He is already paying off a loan with an IME of Rs 20,000. Therefore, his IME to income ratio is 20% and a lender will estimate that Ashok’s total borrowing capacity is Rs 50,000, which is half of his. salary. Therefore, the incremental total EMI that Ashok can afford is Rs 30,000. Using an EMI calculator, you can recalculate that the total amount that will be sanctioned in Ashok at an interest rate of 10% over 20 years will be of Rs 30 lakh. Therefore, her loan application will be approved, if her documents are deemed acceptable.

It is important to note that as a general rule, the lender may view your application negatively if your income / EMI ratio exceeds 50%.

Now let’s see how Manish’s loan application is rated:

Manish’s monthly income is Rs 2 lakh, which is double what Ashok earns. Manish is already paying off another loan with an IME of Rs 1 lakh. Therefore, his current IME to income ratio is 50% and the total of additional IMEs he can afford is zero, because if this Rs 30 lakh loan is given he will incur another Rs 30 IME. 000, which places it well above the acceptable. IME / income ratio.

Manish’s loan application is likely to be rejected. Therefore, if your current total IME exceeds your monthly salary by more than 50%, then the chances of getting a loan are lower.

Credit report and score

In summary, while a high credit score, strong credit history, and high income help with loan approval, they by no means guarantee one. Having manageable debt levels also plays an important role. Lenders are always ready to provide loans and credit cards to disciplined consumers who have high credit scores and healthy credit history.

The credit score works as a first impression on the lender, the higher the score the better your chances of the loan being reviewed and approved. However,

it should be remembered that the decision to lend is solely up to the lender and the credit reporting agency does not decide whether the loan should be sanctioned or not.

It is crucial for every person to improve and maintain their credit rating to ensure that they get credit when needed. You have to pay all credit card dues and IMEs on time to avoid having a bad credit score and a bad report. Failure to pay dues on time can eventually lead to a bad score and your loan application has a high chance of being rejected.

Also, it is imperative that a person checks their credit score even before they consider applying for a loan. This will give the person enough time to rectify their credit rating and history.

(By Harshala Chandorkar, Director of Operations, CIBIL)

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