Loan Against Property:
Understanding Your Eligibility

Lenders offer secured loans through loan against property (LAP) against commercial or residential property. Compared to an unsecured business or a personal loan, these loans come at lower interest rates and have longer tenures. Since the lender will also appraise the property you are pledging, the process from application submission to disbursement of funds will take longer when compared to unsecured loans.

Whether you are self-employed in a professional setup or business or a salaried person, you can avail such loans if you own a property. The amount of money that is sanctioned as a loan is also higher than other borrowing options.

This amount will not depend upon the potential future value or past value of your property. It will depend upon the fair market value that is prevailing at the time and whether it is residential or commercial. Depending upon the nature and market value of the property, your lender could sanction an amount of up to 75% of your property’s value.

The amount of loan that will be provided to you depends upon the loan-to-value (LTV) ratio provided by the lender as well as your repayment capacity.

The Loan-to-Value (LTV) Ratio

The loan-to-value ratio or the LTV ratio means the maximum percentage of the market value of the property that a lender may be willing to provide as a loan. LTV is determined by a lender based on the prevailing market conditions as well as their risk policy.

For example, if the lender’s maximum LTV ratio is 75% for residential property valued at INR 50 lakhs, then the owner may get at the most INR 37.5 lakhs as a loan by pledging it.

How is The LTV Ratio Calculated?

LTV ratio is calculated with the help of the following formula:

LTV ratio = (MA/APV) where

APV = Appraised Property Value

MA = Mortgage Amount (or loan amount)

LTV ratio is expressed as a percentage. The main factors that affect LTV ratios are the appraised value of a property, nature of the property, and the lender’s risk policy. You can also use the SMFG India Credit’s LTV calculator to calculate how much loan you can get.

Other Factors That Affect LAP Amount

1. Credit Score and History
   Credit score and history is one of the most important factors in a borrower’s application for a LAP. It reflects the creditworthiness and overall financial behaviour of the borrower. It also indicates if the borrower can be trusted to repay the loan. 
   Bad credit history could adversely affect the LAP eligibility and amount. It could also result in loan rejection or at best, harsher terms and conditions for the loan. Conversely, a good credit history could substantially appreciate the LAP amount for the borrower.
   To be eligible for a LAP from SMFG India Credit, borrowers must have a minimum CIBIL score of 700. To know more, please check our LAP eligibility criteria. 
2. The Borrower’s Age
   Lenders consider the age of the borrower to determine their ability to repay the debt. Since the borrower has to repay the loan before retirement, how close he or she is to this age limit plays a big role in determining the LAP eligibility, the loan against property interest rates, and the repayment tenure.
3. Multiple Loan Applications Rejection
   Credit intermediaries and financial institutions maintain a record of the loan applications that have been rejected in the past. If you have applied for multiple loans in the recent past and most of them have been rejected, it will reflect in your credit report. 
   If not outright rejected, your LAP application may be rejected if there are multiple loan application rejections in the recent past. . 
4. Inadequate ITRs
   If you are a self-employed individual, lenders will ask for your income tax returns for the previous years. Failure to furnish the required number of IT returns is a red flag for any financial institution.
   Even if you are on firm financial ground presently, a chequered monetary past may cast doubt on your ability to meet future commitments. This could lower your bargaining power when asking for the LAP amount or even get the application rejected.
   Are you looking for a LAP? Visit our website today and use our loan against property EMI calculator to customise a LAP that is uniquely suited to your requirements.