Why Income Proof is Necessary for a Mortgage loan

  Why Income Proof is Necessary for a Mortgage loan

A mortgage loan or a loan against property is a loan available for both salaried and self-employed individuals. You can get a mortgage loan by pledging your property for a tenure up to 10 years. Presently, the lowest rate of interest for a mortgage loan is 8.70%, and banks generally ask for a processing fee of 1% of the loan amount for availing a loan.

Documents for availing a mortgage loan: To avail a mortgage loan you would require to submit the following documents:

  1. Proof of identity
  2. Address Proof
  3. Application Proof
  4. Income Proof documents

Income proof documents for availing a mortgage loan: Along with the property papers which serves a collateral or security banks also needs the following income proof:

  1. Latest six months salary slips in case of salaried individuals
  2. Latest six months bank statements
  3. Last two-year Income tax returns

Why is income proof an essential document for a mortgage loan: The primary reason why banks need an income proof for providing the mortgage loan is that banks want to prevent themselves from selling the house in case the borrowers fail to make the payment. As the process of selling the mortgaged property takes a lot of time and the value of the property may depreciate in the future depending on the market prices, banks thus prefer that the borrowers have a good income source. Having regular sources of income ensures the bank that you would pay the EMI’s on time and banks would not have to suffer any loss.

Consider this example to understand better the significance of income proof for a mortgage loan:

If a borrower has a monthly income of Rs. 60, 000 and consider that about 50% of her salary is utilised for paying the EMI’s. Thus, 40% of salary is remaining with the borrower.

Income eligibility for the borrower would be as follows:

Monthly EMI she would pay= Rs. 30,000

Annual amount towards paying EMI= Rs 30,000*12= 3,60,000

Loan tenure= 10 years

Loan amount=36 Lakhs

Thus, the borrower can get a loan amount worth Rs.36 lakhs as per the income eligibility.

Property wise eligibility for the borrower would be as follows:

If the value of the property is Rs 60 Lakhs and 60% of the value of the property is sanctioned as a mortgage loan, then property wise eligibility for the borrower would be: 60%*60,00000= Rs. 36 Lakhs.

Thus, the borrower’s monthly income is sufficient to get a mortgage loan worth Rs. 36 Lakhs.

Calculating your income proof eligibility using mortgage Loan Calculator

To know about the income eligibility of getting a loan, you can use a mortgage loan calculator. A mortgage loan calculator is a financial tool which helps you to calculate the monthly instalments of the loan based on the various factors. The various factors on which your monthly instalments depend are as follows:

  1. Loan amount of a mortgage loan: If the loan amounts are high, then the monthly payments of the loan that you need to pay would be high.
  2. Rate of interest of a mortgage loan: The rate of interest for a mortgage loan also directly proportional to the EMI’s. Higher the rate of interest and higher the EMIs.
  3. Loan tenure of a mortgage loan: The tenure of a loan is inversely proportional to the monthly instalment of the loan. Longer the mandate, the less EMI you would have to pay.

Thus, before availing a mortgage loan, you can calculate the monthly instalments you would need to pay for the loan. If you have required regular sources of income in proportion to the EMI’s you can easily avail a mortgage loan without any hurdle. In case you don’t have an expected monthly income, you can opt to take a joint loan with spouse, mother, father, brother, son or unmarried daughter who has a regular source of income.

Read More :- Reverse Mortgage Loan

Summary: Why Income Proof is Necessary for Mortgage loan

A mortgage loan or a loan against property is a loan available for both salaried and self-employed individuals. You can get a mortgage loan by pledging your property for a tenure up to 10 years. Presently, the lowest rate of interest for a mortgage loan is 8.70%,

Why is income proof an essential document for a mortgage loan: The primary reason why banks need an income proof for providing the mortgage loan is that banks want to prevent themselves from selling the house in case the borrowers fail to make the payment. As the process of selling the mortgaged property takes a lot of time and the value of the property may depreciate in the future depending on the market prices, banks thus prefer that the borrowers have a good income source. Having regular sources of income ensures the bank that you would pay the EMI’s on time and banks would not have to suffer any loss.

However, before availing a mortgage loan, you can calculate the monthly instalments you would need to pay for the loan. If you have required regular sources of income in proportion to the EMI’s you can easily avail a mortgage loan without any hurdle. 

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