Criteria’s followed by lenders for Equity finance

Financing of mortgage loans by lenders/ financial institution is becoming order of the day given the current economic status worldwide and upsurge in the real estate business. While it offers certain advantages and makes repayments easier, it is worthwhile to look into certain criteria before lending the money.

One of the most important factors to be measured is the credibility of repayment of the borrower and its credit history. These records can be attained from various bureaus and are helpful as it provides an insight into the details of payment of outstanding debt of the borrower. These details are also essential in ascertaining the income of the borrower thereby providing the repayment capacity. It also provides details of any late payments, delinquencies, overextensions etc. Lenders may look into providing a better rate for a good credit report.

Debt to income ratio is an important aspect to be looked into by lenders. This ratio is calculated to ascertain the financial status of an individual and generally should not cross 36%. Certain institution also provide the financing option to borrowers with poor ratio, however in that case generally the interest rates are kept higher along with higher down payments.

House ratio essentially means a ratio of monthly housing expense paid by the borrower to the gross monthly income. This ratio should not generally exceed 28 %. The monthly housing expenses would include taxes, property leases, housekeeping amount, principal plus interests of the loan amount, hazardous insurance etc.

Lenders should also look into the employers records and confirm the existence of a steady income. A certain minimum period of employment is essential for getting a mortgage loan approved. This would ensure that consistency of payment and ensure financial security of the borrower. For people hopping jobs before stipulated period, home loan consideration becomes little tacky.

Another important thing, which needs to be kept in mind, is that the net salary needs to be taken into consideration as against gross salary.  This is essential since the carry home salary is the one available for use. It would also ensure that all requirements are taken care of in addition to payment of mortgage. In addition, if the inclusion of EMI makes per month expenses more than the carry home package then the loan amount is revised to accommodate other expenses. This measure has to be incorporated by the banks for ensuring returns.

Home appraisal/ valuation should also be considered before sanctioning a loan amount. The lenders should carry out a thorough survey of area/ home and only after recognizing the worth of the property, sanction the amount. Generally, the institutions pay about 80 % of the value and the remaining is expected to be borne by the individual or the borrower.

If above criteria are looked into and all factors considered the loan amount generally is easily paid off and security of re payment is ensured. These measures prove worthy for the lender as well as taker too.