Home Loan Eligibility and LTV Ratio

There are many factors to keep in mind when you decide to buy a residential property with the help of a home loan. One of these is the Loan-to-Value Ratio, or LTV. This will determine the maximum loan amount that will be sanctioned by the bank or financial institution. It will also be determined by the quantity of the home loan that you have applied for.

What is LTV of a home loan?

The Loan-to-Value (LTV) of a home loan refers to the ratio of the home loan that can be sanctioned in relation to the total value of the property that is being purchased. This can vary among various banks and financial institutions. It will usually be in the range of 75% to 90% of the property cost although it can also depend on the borrower’s relationship and track record with the lending institution.

Check Out: Ways to Enhance your Home Loan Eligibility

Pros and Cons of LTV

There are many pros and cons of a higher and lower LTV. If you are sanctioned a higher LTV, the advantage is that the down-payment you have to provide for the loan will be lower in quantity, but your Equated Monthly Instalments (EMI) will be higher because your loan amount is greater.

On the other hand, if you are sanctioned a lower LTV, it would mean that the down-payment you have to pay will be much higher, but it would also mean that your loan EMIs are lower because your loan amount is lower.

The Ideal LTV Ratio

When considering a home loan and how much LTV you can expect, it is important to do a cost-benefit analysis of your financial situation and then decide how much of a loan amount you will be applying for. Remember that the higher the home loan you apply for, the lower will be your down-payment and vice versa. A higher loan amount would mean a longer tenure while a smaller loan amount would mean your tenure gets over earlier.

The interest rate offered on the home loan should also be taken into account when determining if you should choose a higher LTV or a lower LTV. If the interest rate on the home loan is higher, it may make sense to choose a smaller home loan amount but a larger down-payment. If you can afford a larger down-payment and have the funds in hand, then choosing a lower LTV would help you save money on the interest and EMI and shorten your loan tenure. However, if you do not have the wherewithal or savings to arrange for a higher down-payment amount, then you would have no choice but to apply for a larger home loan amount, and thus a higher LTV ratio.

The Reserve Bank of India (RBI) has set certain slabs and limits to the LTV of a home loan. These are as given below:

• For home loans of up to Rs.30 lakh: LTV of up to 90%
• For home loans between Rs.30 lakh and Rs.75 lakh: LTV of up to 80%
• For home loans exceeding Rs.75 lakh: LTV of up to 75%

Some of the factors that determine the LTV ratio are:

• Applicant’s credit score
• Applicant’s total liabilities
• Applicant’s age

Check Out: Guide to Home Loan Application

Factors that Determine Eligibility for Home Loan

There are several factors that determine home loan eligibility, ie., the chances of your home loan application getting approved. Some of these factors are:

• Credit history: Your credit score or credit history will play a large role in your home loan eligibility and chances of getting a higher LTV. The higher your credit score, the higher will be your chances of getting your home loan approved without any delays, a higher LTV, and lower interest rates, along with speedier approvals.
• Total liabilities: Your total liabilities are the ratio of all your current debts to your total income from all sources. This means that if you already have many loans that are in being repaid, then the amount of home loan you get sanctioned maybe lower than what you expected.
• Age: Your age will play a prominent role in your home loan approval process. The average age given by banks as a cut-off to finish repaying a home loan is 60 years. This means that the older you are at the time of applying for a loan, the lesser number of years you have to repay it, as compared to if you were to apply for a loan when you are younger. Having a longer period of time to repay the loan increases your loan eligibility substantially whereas having fewer number of years to repay it can bring down your eligiblity and LTV as well.

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