While thinking about your mortgage, you have probably wondered what your creditworthiness is. Will you get the loan you are applying for without a problem . What is your maximum credit limit? What can you possibly do to improve your credit standing? These are interesting issues related to mortgage.
What is credit standing?
Creditworthiness is the maximum amount of mortgage that you can get in a given bank . Based on various data, banks estimate how much they can lend to you in the form of a mortgage. This is an enumeration that arises as a resultant of several parameters below.
Creditworthiness and income
The maximum loan amount you can get depends mainly on the amount and type of income you receive. How do you calculate your monthly income?
As a rule, the most common rule in banks is to calculate the maximum loan amount on the average of the salary for the last 3 months. In a few banks, allowances are calculated to some extent, e.g. in half, in three-quarters. The employment contract should last for a minimum of 3 months. It is best that it is concluded for an indefinite period.
Work contract, work contract
Definitely a more stringent approach. It should be assumed that banks will require 12 months of employment under this type of contract. Only two banks have a requirement of six months. Depending on the tax deductible costs, banks can count on their creditworthiness to influence the account or accounting income.
Economic activity must last at least 12 months. In several banks up to 24 months. Depending on the type of settlement with the tax office, the bank will calculate net income based on KPiR, lump sum, tax card. KPiR income based on PIT for the last year and KPiR for the current period. If someone settles on a lump sum basis, the bank will usually only accept 15-40% of the amount of revenues. In the case of a tax card, the bank will accept a multiple of the rate, usually up to nine times.
Creditworthiness and liabilities
One of the basic factors for assessing loan repayment ability are monthly credit charges. You must show all loans, credit cards, leasing and even payday loans. Banks verify credit obligations on the basis of a statement, statements and BIK report. Information on commitments must be cross-confirmed.
The monthly cash loan installment is 100% charged to your creditworthiness.
In the case of mortgage loans, banks can accept up to 150% of the current installment value. Such inventory results from the potential for an increase in the interest rate or an increase in the exchange rate.
Limit on the invoice or credit card
Banks accept a percentage of the limit granted for charging. Most often it is in the range of 2.5-5% of the granted credit limit. It doesn’t matter if the limit is used or not.
Maximum amount of obligations
We recommend adopting a maximum DTI of 40% for farms with less than average wages and 50% for farms with higher incomes. DTI is the sum of the costs of maintaining the farm and all credit obligations. At the same time, the recommendation gives the opportunity to exceed the set limits. However, this must be a conscious decision of both parties – the bank and the client.
Credit history and creditworthiness
Credit history has no impact on your creditworthiness. You have the same situation in the eyes of banks, if you do not have a credit history, as well as when you have several loan obligations repaid. The problem arises if you have a bad credit history. However, this does not affect whether you are applying for USD 100,000 or USD 200,000 or USD 300,000. You will not receive credit in any amount. The bank will simply not accept you as a borrower.
Banking scoring is a point assessment made by the bank of each borrower. The scoring is affected by all relevant parameters: age, income, type of income earned, own contribution, loan amount, household and many others. It happens, although relatively rare, that bank scoring can mix up the pattern. In the black scenario, it can cause a negative decision. Low scoring may reduce the loan amount, and therefore the payment capacity. For example, one of the banks used to reduce the loan amount by over USD 100,000 due to my client’s secondary education.
Age is very important in calculating the maximum available loan amount. Banks grant loans of various ages. Depending on the bank, this is the limit: 60, 65, 67, 70, 75 and 80 years. As you can see – a big spread. The maximum age can shorten the loan period, and thus increase the installment, which in turn reduces the availability of the loan. In addition, banks are required to take into account the decline in income after exceeding retirement age.
Loan period and maximum loan amount
As a rule, the shorter the loan term , the lower the opportunities associated with the available loan amount. At the same time, banks mostly apply the rule that creditworthiness counts for 25 years . Theoretically, there should be no difference between a 25- and 35-year loan period. Of course, this approach is not everywhere. Several banks treat the recommendation with a grain of salt. The longer the period, the greater the possibility of obtaining a higher loan.
Equal or decreasing installments
The maximum loan amount depends, among others, on the amount of future installments. Equal installments are lower than decreasing installments if we assume the same loan period. Therefore, more options are reserved for equal installments.
Own contribution makes it possible to obtain a higher loan amount. Banks make the price of the mortgage dependent on the amount of the deposit. This is related to the bank’s risk. The higher the own contribution , the lower the loan price the bank can offer . The lower loan price gives you more debt options.
Number of people in the household
As a rule, banks charge around 800-900 USD monthly minimum social costs for each person in the household. Therefore, the more people in the family, the lower the ability to pay. Remember that you cannot hide anyone in the household. This is against the law. Banks treat this as an attempt to extort and are able to report such situations to law enforcement authorities.
Minimal maintenance costs
In the loan application you will be asked about the cost of living. When calculating the payment capacity, the bank will accept the higher of its value. Your statement or internal minimum costs. Even if you declare very low costs in the loan application, and the values come out of the statements, the bank will rely on the above principle.
As a rule, banks do not include external insurance in their counting. If you pay life insurance or car insurance (OC, AC), most institutions will skip these charges. Your monthly income will not be reduced. The situation is different with insurance, which results from the offer of a given bank. The mortgage calculation will include all insurance premiums offered by the bank. These will obviously affect the final result.