InvestorQ : How can a borrower calculate his/her eligibility for a Loan against Property (LAP)?
Tanya Mehta made post

How can a borrower calculate his/her eligibility for a Loan against Property (LAP)?

Nitin Shah answered.
3 years ago

For any loan to be sanctioned to a borrower, the lender- bank or non-banking finance company (NBFC), checks his/her repayment capacity. This repayment capacity is one of the most important eligibility criteria when it comes to sanctioning of a mail.

If you meet the lender’s eligibility criteria Based on you meeting eligibility criteria, a loan is sanctioned to you. Do note, however, that the eligibility of a loan cannot, generally, exceed 60% of the property’s market value.

Factors that impact a borrower’s loan eligibility:

1. Income – A salaried employee has to furnish salary slips of the last three months and bank account statement for the previous six months. If the borrower is a self-employed professional or business entity, financial statements like balance sheets and profit & loss statements are required.

2. Continuity of employment - A letter from employer that the potential borrower is employed with the said company/ organisation should suffice. A borrower must supplement this information with his/her Form 16, and IT Returns (ITR) for the past two years. Self-employed and business concerns can submit proof of doing business like GST registration certificates, partnership deeds, and Certificate of Incorporation (for companies).

3. Current debts, if any - Usually, one should have a take-home pay of 50% after accounting for all the equated monthly instalments (EMIs) including the proposed one for the Loan against Property (LAP). Hence, it is imperative for borrowers to declare their current debts or loans, if any.

4. Credit history – All lenders are members of CIBIL (Credit Information Bureau (India) Limited). Thus, they can pull out the borrower’s credit records from CIBIL to determine his/her creditworthiness. Usually, a credit score in the range of 600 and above is acceptable.

5. Property’s value- A borrower’s eligibility depends on the value of his/her property. The loan to value (LTV) ratio ranges from 40% to 70% depending on the location of the property.

6. Legal scrutiny report - Banks have panel advocates to carry out the search of the property in the respective Sub-Registrar office to determine the chain of property ownership. This process also enables them to determine if there are any encumbrances on the property. this is avery important process as it allows the banks to understand whether the borrower has the eligibility to create the equitable mortgage in favour of the bank.

7. Applicant’s age - The minimum age of the borrower should be 21 years at the time of application.