04/02/2025
4 CRITERIA LENDERS USE TO ASSESS LOANS
While methods to assess loan applications can vary significantly, there are 4 key criteria lenders generally use to determine whether a loan application should be accepted or rejected.
The 4 main criteria lenders typically use to assess investor loans are:
Loan-to-value ratio
The loan-to-value ratio is the size of the loan that a finance seeker is applying for, compared to the cost of the property. For example, if they apply for a K400,000 loan on a property that costs K500,000, that is an 80% loan-to-value ratio (LVR).
Therefore, investors will have to provide a deposit, such as equity from another property or savings that they have in a bank account, or a combination of the two. Most lenders are happy to lend at an 80% LVR, but only a smaller number will lend at 95% and then almost always with the payment of mortgage insurance by the borrower.
Serviceability
An investor’s serviceability will vary dramatically from lender to lender as companies calculate this differently, but it essentially takes into account finance seekers income against their outgoings, including debt repayments. Serviceability is tested by lenders to ensure finance seekers can meet their repayments.
Credit History
Lenders will look at finance seekers credit report to determine if they’re financially responsible, i.e. if they can adequately manage their money. If they’ve overdrawn their savings or credit accounts or have missed a deadline to pay a bill then this may adversely affect their ability to secure a loan.
Property details
If they are borrowing against their home or an investment property, the type and location of the property will affect their loan application. ‘Riskier’ assets, such as if a finance seeker is offering their property located in Kerema where there is less likely of disposal if loan is called up compared to a property located in Port Moresby, this kind of situations can limit the amount of loam they can borrow.
It’s interesting to note that the amounts each lender may be willing to lend to a finance seeker can vary significantly and in many cases some lenders would approve a loan while others would decline it.
