The Role of Property Valuation in Home Loan Approval

As you embark on your home buying journey, understanding the role of property valuation in the home loan approval process is crucial. In this blog, we will discuss the role of property valuation in the home loan approval process and provide actionable tips to ensure a smooth loan application experience.

Role of Property Valuation in Home Loan Approval 

When you apply for a home loan, the bank needs to assess the value of your property to determine the loan amount they are willing to offer and set appropriate interest rates. 

Here's how property valuation affects different aspects of the home loan approval process: 

• Loan Amount: The valuation of your property directly impacts the maximum loan amount you can avail. Banks typically offer a percentage of the property's value as a loan, also known as the Loan-to-Value (LTV) ratio. For example, if your property is valued at ₹1 crore and the bank has an LTV ratio of 80%, they may approve a loan up to ₹80 lakhs. However, the final amount is at the sole discretion of the bank and depends on various parameters including your credit or CIBIL score, annual income, repayment capacity, etc. 
• Interest Rates: The valuation of your property can also influence the interest rates offered by banks. A higher valuation may result in lower interest rates, as it signifies lower risk for the bank. Conversely, a lower valuation may lead to higher interest rates or even rejection of your loan application. 
• Loan Eligibility: Property valuation is a crucial factor in determining your loan eligibility. Banks have specific criteria for approving loans based on the value of the property. If the valuation falls below their minimum threshold, your loan application may be rejected. On the other hand, a higher valuation can enhance your chances of loan approval. 
• Loan Repayment Tenure: Property valuation can also affect the repayment tenure offered by banks. A higher valuation might make you eligible for longer repayment tenures, which can help reduce your monthly EMI (Equated Monthly Instalment) burden. 
• Loan Approval Process: The valuation report plays a crucial role in the overall loan approval process. This report helps banks evaluate the risk associated with offering you a loan and make informed decisions accordingly. 

Sample Calculation 

Let's understand how property valuation affects the loan amount using a sample calculation: 

Imagine you're planning to buy a house in Bengaluru worth ₹1 crore. You apply for a home loan with a bank, and after a thorough valuation process, the bank determines that the property is valued at ₹90 lakhs. Based on their LTV ratio of 80%, they offer you a loan amount of ₹72 lakhs. 

As the property's value is slightly lower than your expectations, you negotiate with the seller and agree on a revised purchase price of ₹95 lakhs. With the revised purchase price, the bank approves a loan of ₹76 lakhs (80% of ₹95 lakhs). 

Disclaimer: The above example is for illustration purpose only. Ujjivan SFB does not take any responsibility for the accuracy of the information. Please use a Savings Account Calculator and Recurring Deposit Calculator or consult with a financial expert for better understanding.

Tips for a Smooth Loan Application Experience 

To ensure a smooth home loan application experience, consider these tips: 

• Get an Independent Appraisal: While banks conduct their own property appraisal, getting an independent appraisal can provide you with an accurate understanding of the property's value. This step allows you to address any discrepancies or potential issues beforehand. 
• Research Market Conditions: Stay informed about market trends and conditions in the area. This knowledge will give you insights into how external factors may affect the property's value. 
• Seek Professional Advice: Consulting with real estate experts or financial advisors can provide valuable guidance throughout the home loan application process. They can help you navigate property valuation and other critical aspects of securing a loan.