Does Loan against property amount only depend on Property value?

credit scoreLAP is one of easiest financing option available currently in the market. It is provided by taking property as a mortgage. It is a common misconception among the borrower community that final loan amount should depend only on the final market value of the property. Usually, borrowers ask for questions like why I shouldn’t get a loan amount of 50 lakhs at least if my property value is Rs 1 Cr?  This question is quite natural and you will get the answer to this in the following discussion.

Yes, we agree that property value plays an important role in the final amount of your loan application but it is not the only factor on which final loan amount is decided. Your final loan amount depends on several factors like mentioned below-

  •         Income – The income you generate is one of the most important factors for your eligibility calculation. If cibil scoreyou are a salaried individual then your gross salary would be taken into account and if you are self-employed then your profit for that year minus any obligation would be taken into account.
  •         Market value of property – LAP is a loan given by taking property as the mortgage. It is very important that property being mortgaged has clear title and is free of any legal disputes. These two are the minimum requirement for taking property as the mortgage. In addition, the property should be easily marketable and saleable in the case of default. Usually, banks provide a loan of 40% to 70% of market value of property.
  •         Repayment track record – If you are having an existing loan(s) running then your repayment track record would be closely monitored. It is credit score rangeexpected from your side that you must have paid your existing EMIs on time. If there is/are any default(s) in your repayment, then it should be clearly explained with logical justification.
  •         FOIR – FOIR stands for fixed obligation to income ratio. It is calculated by taking into account your fixed obligations like EMI on term loan or loan against property. Usually, a FOIR of 30-50% is offered on your monthly income. A FOIR percentage can be increased or decreased depending your income.
  •         Average Banking Balance – Often abbreviated as ABB in the banking industry, it is the average bank balance that you maintain on your bank account. Usually, banks look for average bank balance of twice of the EMI for your loan.
  •         Other factors – Apart from above factors lending institutions would also look into other important loan against GPA propertyfactors like –
  1.       Business vintage/Current work experience.
  2.       Lifestyle.
  3.       Future expenses.
  4.       Number of dependents on applicant.
  5.       Age of applicant and Co-Applicant.
  6.       CIBIL record
  7.       Loan purpose.
  8.       Reference check.

From the above discussion, it pretty much clear that your final amount in the loan is just not dependent only on your property. There are several other factors for calculating your final loan amount in your loan application. But, having said that, a property with good market value and in good condition would always fetch a better loan amount compared to other property which is less marketable.