How Is the Loan Amount Determined When Taking a Loan Against Property?

When one applies for a loan against property (LAP), the loan amount is primarily determined by the property’s value and the applicant's financial profile. Loan providers evaluate various factors to decide the amount that can be offered as a loan. Here’s how loan providers typically determine the loan amount:

• Property’s Market Value: The key factor is the property's current market value. Loan providers often conduct an independent valuation to accurately estimate the property’s worth.
• Loan-to-Value (LTV) Ratio: Based on the property’s value, loan providers typically offer a loan amount ranging from 50% to 90% of the property's market value. For instance, if the property is valued at ₹1 crore, one can expect to get a loan of ₹50 to 90 lakhs.
• Type of Property: Residential properties usually have higher LTV ratios than commercial or industrial properties. Existing vacant land may have stricter limits.
• Borrower’s Financial Profile: Income, credit score, existing liabilities, and repayment capacity of the loan applicant can significantly impact the loan amount. A high credit score and stable income can help improve eligibility.
• Legal and Documentation Compliance: The pledged property must have a clear title, proper registration, and no legal disputes. Loan providers scrutinise these aspects before approving the loan amount.

Understanding these factors can help loan applicants set realistic expectations and prepare effectively for the loan application process.