When taking a major step in life, such as going abroad for higher education, getting married, setting up a new business, or revamping the house inside out, the first thing that comes to mind is, “How will you arrange the finances?” Whether professional or personal, every new stage of life involves money, and that is when a mortgage loan lets you unlock your property’s value without liquidating it. Also known as a Loan Against Property, it is an excellent funding option to meet your cash requirements quickly and efficiently.
As the name suggests, mortgage debt or a Loan Against Property is the amount you borrow by keeping your property as collateral. The pledged property acts as security for the financial institution, but its ownership and possession remain with you. While you can borrow up to 75% of the property’s fair market price, you must fulfill specific eligibility criteria to qualify for a secured loan. Let’s look at the factors affecting your LAP eligibility in detail.
Factors Affecting Mortgage Loan Eligibility in India
1) Age
You can easily qualify for a Loan Against Property (LAP) if you are between 25 and 75 years of age. That is because individuals in this age group have sufficient finances to repay their EMIs on time. However, if you have reached retirement age, you may try for a loan with a shorter tenure, resulting in higher EMIs but faster repayment.
2) Loan Amount
In a Loan Against Property, the loan amount and interest rates depend on the applicant’s eligibility and the property’s market value. Top lending institutions provide as much as 75% of the property’s market value as a loan. Usually, an applicant with their property at a prime location can get a loan of up to Rs 5 crore. However, the mortgage loan interest rates will depend on various factors, such as the applicant’s credit score, debt-to-income ratio and credit utilisation ratio, and loan tenure.
3) Repayment Tenure
The repayment tenure you select is crucial to your mortgage loan eligibility. A longer term lowers your EMI, which is a favorable selection if your income is low and you cannot afford to pay hefty EMIs each month. However, opting for a longer tenure increases the total interest outgo you pay by the term end. Moreover, it blocks the lender’s money for a longer period, justifying their reason to charge you with a higher interest rate. A LAP EMI calculator helps you select a loan tenure with budget-friendly EMIs, assuring the lender of low risk with prompt repayment.
4) Occupation Status
Before approving your loan application, the lender wants to see a steady income flow that ensures consistent EMI payments. When you approach a financial institution for a Loan Against Property, they will assess your occupation, history, and experience. With this, they evaluate your ability to pay monthly EMIs.
Most lending institutions provide a mortgage loan to self-employed professionals and entrepreneurs only. So if you are a business owner, you must be active in it for at least three years to qualify for a LAP loan.
5) Credit History
Each time you seek credit, the lending institution determines your eligibility based on your credit history. Credit bureaus calculate your credit score after evaluating your repayment habits, portfolio diversity, outstanding balances, credit utilisation ratio, credit age, and other factors.
Most finance providers pull a hard enquiry on your credit report and check your credit score to see how responsible you are as a borrower. Any payment defaults, cheque bounces, late payments, etc., deteriorate your credit score and make a negative impression on the lender, giving them enough reason to reject your loan application. On the other hand, a high credit score makes you an eligible borrower for a bigger mortgage loan amount at lower interest rates.
6) Property’s Location and Condition
LAP is a secured loan that keeps your property as collateral against the borrowed amount. If you fail to repay the loan, the lender will recoup their loss by seizing and selling your property. Therefore, lenders prefer intact properties located in metro cities. Such properties are easier to sell at higher resale values, helping the lender get back their money without a hassle.
7) Leveraged Property Documentation
When you apply for a Loan Against Property, any lending institution will first demand its documentation to scrutinise. Any document errors, discrepancies, or legal issues will reduce your loan eligibility. The property documents they check include title deeds, building plans, permits from local authorities, etc.
Moreover, your loan application may edge over others if your leveraged property is adequately insured. It increases the trust level between you and the lender, making them feel confident that the property will not lead to a loss in the future. Getting insurance also decreases the risk and burden in case of an unfortunate event. So, getting mortgage insurance is always advisable to safeguard your finances and protect your family.
8) Regularity of Filing Income Tax returns
Regular ITR filing is an essential part of the loan application process, as most lenders ask for the last three years’ income tax returns to evaluate your finances. These documents demonstrate the consistency of your cash flow over the previous few years, helping them determine your repayment capacity and make their lending decision. Insufficient returns often attract loan rejection.
9) Past Loan Rejections
When evaluating your loan application, lenders check your credit profile and look for any discrepancies in the past. If other lenders have already rejected your loan, they take it as a red flag and conduct a thorough evaluation before approving. Always provide correct information and documents with your application because the lenders will find it later anyway through hard enquiries.
Conclusion
Understanding the factors affecting mortgage loan eligibility will help you navigate the application process easily and quickly. Since these factors are crucial to loan approval or rejection, take care of them to get assured approval.
