In deciding whether or not to lend money, banking institutions look at different criteria to minimize their risk. The study of the mortgage loan file is complete and thorough.
The professional situation of borrowers
The bank will study the sustainability and the nature of the revenues. Even if a borrower decides to allocate less than 33% of his income for the monthly installment of a mortgage, the lending institutions will look into the professional situation of the latter.
Sustainability of income
This is for the bank to ensure that the borrower receives income on a regular basis and that these revenues will be received until the end of the credit for an amount at least equal or higher. If the borrower has seniority in his business, it is also a guarantee of sustainability.
This sustainability of income can be measured by the analysis of salary slips and the latest tax notices.
If incomes are not regular, a monthly average will be made on the income received.
The nature of income
The study of the nature of income is also important. Government-type income can be granted for a defined period of time and unbalance the borrower’s finances at the time of their judgment. Conversely, some regularly collected annuities can be used to calculate the borrower’s income.
The borrower’s income, therefore, does not include only his salary. For example, alimony may be taken into account if it is paid until the end of the loan. The amount of income will therefore also depend on the duration of the mortgage.
Once the stable income has been established, the recurring expenses (loans in progress, pensions paid, etc.) will also be inventoried to know the net resources of the borrower.
Other criteria taken into account by banks when studying a mortgage
Banks are attentive to the entire project and to the household’s overall income, with the aim of minimizing the risk of non-repayment.
The amount of personal contribution and household savings are signs of good financial management for banks. The quality of the project is also taken into account, a purchase price of the property too excessive may make banks reluctant.