How Much Does Equity Count In Loan Approval ?
The percentage or the amount of the value of a property owned by the applicant is called the equity. This value or percentage is determined by the amount of the balance of the outstanding loan that has been repaid. Thus, it can be said that the equity is directly proportional to the value of the property of the borrower to the lenders as in this situation; the real estate involved becomes the collateral on the basis of which a mortgage loan is secured.
Several factors are considered by a lender in addition to equity before granting loan to a potential borrower. The borrower’s credit score and history, income and investments, other outstanding debts, value of the property, the amount of loan desired by him, the amount of down payment made by the borrower, etc go through the lender’s scrutiny before approval of loan. It is the lender’s risk appetite which decides whether the loan will be approved or not. Risk appetite of a lender is the factor on which the lender banks upon while giving out the loan amount to the probable borrower.
Equity is just a part of the whole picture. Though some lenders put it as a priority or the risk appetite, it is the overall credit profile that the borrower has to impress his lender with. Various lender put stress in various aspects of the borrower before lending out any money. It is the borrower who has to identify his own key points by which the lender can be convinced of passing the loan.
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