Loan Eligibility and Assets

Loan eligibility refers to your ability / capacity to avail the loan from banks or non-banking financial institutions (NBFCs). It consists of various criteria like income, age and credit history.


Lenders typically prefer borrowers who have a stable source of income. If you can, consider asking for a raise or picking up extra work to boost your income.

Credit Score

Credit scores are a key piece of the lending puzzle. Lenders use them to assess a borrower’s creditworthiness and determine loan eligibility, interest rates, and terms. A borrower’s credit score is a number calculated from several factors, including payment history, debt, and credit utilization. A high credit score demonstrates that a borrower is low risk and is likely to pay back their loans in a timely manner.

Your credit score ranges from 300 to 850, with higher scores indicating better creditworthiness. A good credit score is 750 or above, according to FICO, the scoring model that most lenders use. A high credit score enables you to qualify for more loan offers, which can save you thousands of dollars in interest charges over the life of your loan.

In addition to your credit score, lenders look at your income to help determine loan eligibility. They want to make sure that you can afford your monthly payments and have enough left over to cover unexpected expenses. They also look at your current debt-to-income (DTI) ratio to see if you are spending too much of your income on credit cards, auto loans, and mortgages. They typically want to see a DTI under 40 percent. This is why it’s important to stay on top of your credit score and avoid applying for new credit unless you truly need it.

Debt-to-Income Ratio

The debt-to-income ratio (DTI) is one way lenders measure how much you owe versus the amount of money you make. It’s calculated by dividing your total monthly recurring debt payments – such as your mortgage payment, student and auto loan payments, credit card minimums and other debt repayments – by your gross monthly income. Your DTI can vary based on how you report your income and what expenses are considered. For example, some lenders may include alimony or separate maintenance income in your calculation while others will not.

Lenders use DTI to determine your borrowing risk and to ensure that you will be able to comfortably afford a new mortgage, car loan or other debt payments each month. A low DTI ratio is viewed favorably by lenders, while a high DTI raises red flags that signal you might have trouble repaying your loans.

Different types of loans have their own DTI guidelines, but the average DTI for a conventional mortgage is around 36%. A lower DTI is typically required for other types of loans, such as FHA and USDA loans, and VA loans, which are reserved for current and former military service members, have the most lenient DTI requirements of all.

Employment History

Lenders review employment history to help them understand a borrower’s income and their ability to afford a mortgage. This information is usually obtained through pay stubs, W2 forms and tax returns. In addition, lenders will also request verification of employment (VOE) from the borrower’s employer or a third-party provider.

An individual’s employment history is a record of all the companies or agencies that they work for. It can include full-time, part-time or temporary positions as well as freelance work and military service. In addition to companies, employers and job titles, an employment history typically contains the dates of each position held and the salary earned.

Employment gaps and frequent job changes can be problematic for a home loan applicant as they may indicate that the applicant cannot maintain a consistent income. Lenders may allow for a short employment gap or several larger gaps as long as they are reasonably explained and the borrower can demonstrate that their income has returned to its previous level.

Occasionally, a borrower will take a break from employment to complete their education. While this is not ideal, it can be accepted if the borrower can demonstrate that they will return to their regular line of work following their degree. Additionally, some borrowers will take a leave to care for an ill family member or for a new child’s arrival.


Assets are anything you own that has monetary value and can be turned into cash. When you apply for a mortgage, lenders look at your assets to help determine whether you qualify. These assets might include a vehicle, stocks and other investments, and personal property. But they also include a number of things that may not be as obvious, like the money in your checking and savings accounts or the equity you have in your home.

Lenders classify assets based on three criteria: physical type, convertibility and usage. Tangible assets are those you can touch with your hands, such as inventory, property and equipment, raw materials or office supplies. Non-tangible or intangible assets are those that you can’t physically hold, such as patents and copyrights. Finally, non-operating assets are those you don’t use regularly in your daily business operations, such as vacant land or investment securities.

When you’re applying for a loan, it’s important to list all of your assets and their estimated values on your application. This information can influence the type of loan you receive and how much of a down payment you’ll need to make. For example, a lender will take into account the value of your vehicle when considering whether you can afford to make a mortgage payment. For this reason, it’s important to provide accurate and up-to-date documentation, such as Kelley Blue Book or NADA valuations.