Home loan
Modern-day financial organisations and banks have made it quite easy to secure a home loan. But before sanctioning a loan, the lender considers several factors - the value of the property being one of them. They rely on property valuation to ascertain its market value and, accordingly, decide on the home loan for which you are eligible.
Read on to learn all about property valuation and how it can affect your loan amount.
In layman's terms, property valuation is like fixing an official price tag for the home you intend to buy. It gives you and the banks an idea of how much your property is worth in the current market scenario. When applying for a home loan, the financial institution uses this valuation to determine the loan amount they can offer.
Wondering why? Lending a loan involves risk; in case of default, the lender recovers the amount by selling the property. Hence, they never extend a loan that is more than its worth.
Here are the three different property valuation approaches that are taken:
While property valuation seems like a straightforward task, it is impacted by several factors. This can affect the final loan amount sanctioned. These include:
A property in a prime area with good connectivity has a higher value than one in a remote locality. Your home has a better value if it is closer to hospitals, schools, malls, and public transport.
If the property you intend to buy is well-maintained and has solid construction with no repairs required, it will have a higher valuation. An old, deteriorating one does not have much worth in the market.
The real estate market is very volatile, and the prices can fluctuate depending on the demand. If the prices are high in your area, your property is likely to get a higher valuation. On the other hand, a slow market means low market value.
Do you know that gated communities with security, green areas, and modern amenities have a higher market value? Also, factors like road conditions and upcoming infrastructural development also add to its worth.
Now that we understand the property valuation process let's explore its impact on the loan amount you can secure.
Completion of your property valuation is just the first step in determining the loan amount. So, don't rush into using the home loan interest calculator to know your monthly EMI. The next step is to determine the Loan-to-Value ratio, which is important to understand the loan amount you can borrow. Lenders use this information to assess the risk. Here's the formula for calculating this:
LTV = (Loan Amount / Property Value)Ã100
The higher your property's valuation, the more you can borrow.
Want to maximise your loan amount? Follow these tips to improve the value of your property:
If you are buying an old property, check for any possible damages. Fix the leaks, get the property repainted, and make necessary repairs before the valuation process. This will improve its worth.
A property with improper paperwork or legal issues does not have high value in the market. So, make sure that the ownership documents, building approvals, and tax receipts are in place.
Do you know that features like a good view, extra storage space, premium fittings, and modern amenities can raise your property's worth? Mention these during valuation to improve your chances of securing a high loan amount.
Property valuation plays an important role in determining your home loan eligibility. A high value will get you a higher loan amount. Therefore, if you are looking to apply for a home loan, do not miss this process. Take measures so that your property is given a good evaluation since this will enhance your possibility of obtaining the desired loan. Remember, a valuable property is also a good long-term investment.
For property valuation, give the exact location of the property, its area, and the building construction year. Additionally, you have to present the necessary documents, such as sales deeds, property tax receipts, and encumbrance certificates.
There are certified property valuers and government agencies for the purpose. Financial organisations have in-house staff who value the property. They analyse the market trends and evaluate the location and condition of the property to ascertain its value.
Absolutely! You can challenge a property valuation if you are dissatisfied with the assessment. You can ask the bank to review it by submitting relevant documents. You may also ask for a second opinion.
