Jun 12, 2023

Factors Affecting Mortgage Eligibility in India: What Lenders Look For

by Godrej Properties Limited

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Introduction to Mortgage Eligibility

Credit Score and Credit History

A borrower's credit score and credit history are critical factors that lenders closely evaluate. A higher credit score indicates a borrower's creditworthiness and ability to manage debt responsibly. Lenders typically prefer borrowers with a credit score of 750 or above. A good credit history, with timely payments and a low debt-to-income ratio, increases the chances of mortgage approval and favourable interest rates.

Income and Employment Stability

Lenders assess the borrower's income and employment stability to ensure their ability to repay the loan. A steady source of income and a reliable employment history are favourable indicators for lenders. They consider factors such as the borrower's job tenure, salary, and stability of the industry. Demonstrating a consistent income stream strengthens mortgage eligibility and increases the borrowing capacity.

Debt-to-Income Ratio

The debt-to-income ratio is a measure of the borrower's monthly debt obligations compared to their income. Lenders analyse this ratio to determine the borrower's capacity to handle additional debt. Generally, lenders prefer a debt-to-income ratio of 40% or lower. Lower debt levels improve the borrower's mortgage eligibility.

Loan-to-Value Ratio

The loan-to-value (LTV) ratio compares the loan amount to the property's appraised value. Lenders consider the LTV ratio to assess the risk associated with the loan. A lower LTV ratio indicates a smaller loan amount compared to the property's value, which reduces the lender's risk. Most lenders in India offer mortgages with an LTV ratio of up to 80%, requiring borrowers to make a down payment of at least 20% of the property value.

Property Evaluation and Legal Compliance

Lenders conduct a thorough evaluation of the property being financed to ensure its value and legal compliance. They assess the property's market value, location, condition, and future prospects. Lenders verify the property's legal documentation, including ownership title, clearances, and approvals. 

Age and Repayment Capacity

The borrower's age is an important consideration for lenders, as it affects the repayment capacity. Lenders prefer borrowers who have a sufficient number of working years left before retirement to ensure they can repay the loan within the specified tenure. Younger borrowers with a longer working life have higher mortgage eligibility compared to those closer to retirement.

Conclusion

Mortgage eligibility in India is influenced by several factors that lenders carefully evaluate before approving a loan. Maintaining a good credit score, demonstrating stable income and employment, managing debt levels, and ensuring legal compliance of the property are crucial aspects that borrowers should focus on. Understanding the factors affecting mortgage eligibility allows potential homebuyers to prepare effectively and secure favourable loan terms. 
 

Frequently Asked Questions

1.What is the ideal credit score for mortgage eligibility?

Ans: In India, lenders generally prefer borrowers with a credit score of 750 or above. 

2.How does age impact mortgage eligibility?

Ans: The borrower's age is an important consideration for lenders. They prefer borrowers who have a sufficient number of working years left before retirement to ensure repayment within the specified tenure. 

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