Loan against Property Eligibility

Loan against Property Eligibility

You can get loan against property ranging from a minimum of Rs 5 lakh to a maximum of Rs 15 crore, based on your repayment capacity and the cost of the property. A loan against property (LAP) is a loan that is provided against the mortgage of property. The loan is usually provided as a certain percentage of the property’s current market value, which varies around 40 to 70 per cent.
Loan against property eligibility criteria will vary from one bank to another. However, from all the host of factors, the common factors that all banks look at are:

Age :
Loan against Property loan borrower must fulfill the age criteria which is variable depending upon the banks. Your age should be between 23 and 60 years at the time of loan maturity.

Income :
A regular and good source of income is one of the most important factors that a borrower can get higher loan amount. Individuals drawing a smaller salary will -employed, in that case your annual profit would decide your loan maximum eligibility

Nature of Employment:
Banks provide LAP for both Salaried as well as Self-Employed individuals. The rates and loan amounts differ based on your property and your annual income.

Job Stability
A good job stability is a very crucial aspect for loan consideration. A salaried person who has minimum 3 years of professional service can get a hassle-free loan. These numbers are flexible though, varying from bank to bank. If the applicant is self-employed minimum 3 years of Work experience is required.

Existing loans
Borrowers who already have existing loans are likely to get a smaller loan amount. An existing loan reduces the repayment capacity of the borrower. However, if the borrower repayments capacity and financial capacity is good to afford an additional loan, the banks might not lower the loan amount.

Relationship with the Bank
Having a healthy relationship with the banks can be helpful when applying for a loan. Since there are chances that the borrower can get the higher loan amount. It’s always good to first check Loan interest rates at the bank you regularly transact.

Credit or CIBIL Score:
The CIBIL Score plays a critical role in the loan application process. Whenever you apply for a loan, lenders check your CIBIL Score and Report. If the credit score is low, the lender may not even consider the application further and reject it at that point. If the credit score is high, which automatically help in availing you the maximum loan amount. Delays and defaults in paying EMIs for loans or credit cards will lower your eligibility. So, always try to maintain a good CIBIL score, i.e. 750 or above out of 900 to increase your loan eligibility.

Income of co-applicant/s
Adding a co-applicant increases your eligibility for loan as it increases your repayment capacity. The co-borrower you add should have good income, low obligation and clean CIBIL record. Although, banks allow only certain relationships to become the co-applicant. In this category friends and relatives who are not in direct blood relation are not eligible.

Value of property:
Bank will not finance the entire property value. The maximum loan eligibility would depend upon the value of the property. You can get a loan of up to 40-70% of the cost estimates as certified by an engineer/architect and duly verified by the Bank Technical Officer.

Property documents:
Property is located in an approved area without any legal disputes. Any unsettled disputes with the property can lead to rejection of the loan. If the property is meeting the technical and legal terms and norms of the bank then only your loan will get approved.

Methods of Calculating LAP Eligibility

  • FOIR (Fixed Obligation Income Ratio)

In this method, your loan amount eligibility is calculated on the basis of maximum EMI or monthly installments in respect to net income. Banks or NBFCs generally accept 40 – 70% of your net income as EMI, existing obligations and credit card outstanding. If the obligations exceed bank’s norms, then bank will either reduce your loan amount or will increase the tenure of your loan.

DETERMINATION OF ELIGIBILITY – Case 1

  • Income :   50,000
  • Total EMI’s being paid :   10,000
  • EMI to Income Ration : 20% [10,000 / 50,000]
  • Rule of thumb EMI to Income Ratio: 50% [lenders assume you will need half salary for living expenses].
  • Total Borrowing Capacity : 50% *    50,000 =   25,000
  • Total Incremental EMI that individual can afford :  25,000 –   10,000 =   15,000
  • Basis this EMI, total additional loan that may be sactioned at an interest rate of 10% over 20 years =   15,00,000
Loan application is likely to get approved

DETERMINATION OF ELIGIBILITY – Case 2

  • Income :   1,00,000
  • Total EMI’s being paid :   50,000
  • EMI to Income Ration : 50% [50,000 / 1,00,000]
  • Rule of thumb EMI to Income Ratio: 50%
  • Total Borrowing Capacity : 50% *    1,00,000 =   50,000
  • Total Incremental EMI that individual can afford :    50,000 –   50,000 =   0
  • Basis this EMI, total additional loan that may be sanctioned at an interest rate of 10% over 20 years =   0
Loan application is likely to get rejected