Understanding the Loan-to-Value (LTV) Ratio in Home Loan Criteria

When applying for a home loan, several factors will determine if your application will be successful and the amount you can borrow. One of the most critical of these is the Loan-to-Value (LTV) ratio. In addition to income, credit report, and payment history, which are in the forefront of most borrowers' minds, understanding the LTV ratio may be the key difference between securing a home loan and the amount of funds you can expect.

Let's break down what the LTV ratio is, how it's included in home loan criteria, and how it impacts your qualification for a loan.

What is the Loan-to-Value (LTV) Ratio?

The Loan-to-Value (LTV) ratio is the percentage of the value of the property that a lender finances with a home loan. It is calculated as a percentage using the formula:

LTV Ratio = (Loan Amount ÷ Property Value) × 100

For example, if your home costs ₹60 lakhs and the bank gives a loan of ₹48 lakhs, then your LTV ratio is:

(₹48,00,000 / ₹60,00,000) × 100 = 80%

That is, you will have to arrange for the remaining 20% (₹12 lakhs) out of your pocket as a down payment.

Implications of LTV Ratio in Home Loan Eligibility

LTV ratio is a basic part of home loan criteria because it directly influences the extent of risk for the lender. A higher ratio indicates higher lender risk. Accordingly, regulatory bodies like the Reserve Bank of India (RBI) have created upper caps on LTV percentages that financial institutions can offer.

A rule of thumb based on property value is:

• For loans of ₹30 lakhs and less, 90% LTV is allowed
• For loans of ₹30–75 lakhs, 80% LTV is allowed
• For loans above ₹75 lakhs, 75% LTV is allowed

The tiered system ensures that the borrower pays from their pocket fairly, and the risk of default is minimized.

How to Calculate Housing Loan Eligibility Using LTV

When acquiring knowledge of how to calculate housing loan eligibility, you must look at both your salary and the LTV percentage. Here is a step-by-step process:

• Determine Property Value: Know the conditions of the house you wish to buy.
• Know Maximum LTV: Based on your loan slab, know the maximum permissible LTV percentage.
• Calculate Maximum Loan Amount: Multiply the value of the property by the allowed LTV percentage.
• Calculate Income-Based Eligibility: Your income, outstanding loans, and EMIs are taken into consideration by the lender to check your repayment ability.
• Final Approval of Loan: The lower of the two between LTV-based eligibility and income-based eligibility will usually be the approved loan.

Example:

• Property value: ₹50 lakhs
• LTV allowed: 80% → Maximum loan: ₹40 lakhs
• Your income will be able to afford EMI for ₹35 lakhs → Final approved loan: ₹35 lakhs

This shows how LTV works in conjunction with income to qualify for a loan.

Factors Impacting LTV Ratio

While the RBI has guidelines, banks may tweak LTV percentages slightly on a risk evaluation basis. Some factors which may have an impact on such tweaking are:

• Property Type: Half-finished apartments or land can have more conservative LTVs.
• Borrower Profile: A clean credit record or a large salary can help you get a better bargain.
• Type of Loan: For top-up loans or balance transfer loans, the outstanding balance and current valuation of the property form the basis of LTV.
• Regulatory Norms: Central bank policies or economic conditions may influence the quantum of financing that lenders are willing to offer.

Methods to Boost Loan Eligibility Utilizing LTV

You can better plan for your home purchase by understanding the role played by the LTV ratio. Here are some tips:

• Pay a Higher Down Payment: By keeping the loan amount low, LTV is lessened, increasing the chances of approval.
• Select Low-Cost Property: Investing your affordability ensures that your income and LTV ratio are aligned.
• Settle Outstanding Debts: This frees up repayment capacity and increases the amount you're qualified for.
• Use Eligibility Tools: Use online calculators to figure out how to calculate house loan eligibility based on both property value and income.

Loan-to-Value Defined by Grihum Housing Finance

Most homebuyers for the first time confuse eligibility with the amount of loan they desire to take. Banks and other organizations like Grihum Housing Finance enlighten customers about the fine line between income-based eligibility and LTV ratio. Their home loan guidance service considers property costs, market trends, and personal finance to advise on the best amount of funding and help customers prepare a good application for the loan.

Conclusion

Loan-to-Value (LTV) ratio isn't a number—it's a valuable consideration that decides what you are allowed to borrow depending on current home loan criteria. Understanding LTV well not only helps you to estimate your eligibility but also makes you a wiser money planner in your home buying journey.

Whether you're unclear on how to calculate housing loan eligibility or prefer to explore your finance options, Grihum Housing Finance offers straightforward tools and professional guidance to take the experience in hand. By making an informed choice today, you can establish the foundation for a secure and worry-free tomorrow.