A Significant Piece of the Home Loan Approval Process

Real estate is one of the most coveted investment instruments in the country. With the recent relaxation of interest rates and further interest relaxations predicted, homebuyers are inevitably turning to banks for home loan products. While other unsecured lending such as personal loans and credit cards depend majorly on your income eligibility, mortgages require a property evaluation as well. This is a measure taken by lenders to protect their own risk as well as to ensure they are not giving a home loan greater than the value of the property or not lending against a non-marketable one. As the property is security against the home loan given, the property valuation process becomes a pivotal part of a home loan approval.

As prospective homebuyers, we should all be aware of the aspects a lender will evaluate during a property valuation. This information can also help homebuyers in selecting their dream homes as they would certainly want to make the best decisions pertaining to the arguably the biggest investment of their lifetime. Let’s take a look at the parameters a lender will look at during a property valuation.

Geographic Location
Banks prefer giving home loans for properties within the permissible boundary from the hub where the lender’s branches are located. This enables them to service the loan effectively and ensure their representative is available for the borrower in case there are any issues. The lender will also adjudge the accessibility of the property by evaluating the proximity to transportation.

Nature of property
The approval of the loan depends on the nature of the property as well. Whether a property is residential, commercial, high street, agricultural or industrial will affect the valuation of the property.

Current Usage & Usability
The current usage of the property in terms of the property being vacant, tenanted or self-occupied will be checked. Moreover, the usability of the property will be evaluated as well. For example, a residential building being used for office or warehousing purposes will certainly be valued lower or null in this process.

Property in Risk-Prone Area
It is always difficult to rent or sell a property if they are in an earthquake, flood or landslide prone zone. While evaluating the property, this is one of the major criteria that banks look at .If the property is in a dangerous or risk-prone area, banks may not be comfortable in approving the mortgage.

Construction Quality
Construction quality is an integral aspect of the valuation process. With current stories of buildings collapsing due to lack of quality, this issue has gained even more importance. Aspects such as structure RCC frame, load bearing, and quality of materials used during construction will play a role in understanding the real value of the property. This is one of the reasons to opt for developers with a strong reputation of quality.

Age of Construction
The residual age of the property determines the maximum home loan tenure that a borrower would get. The bank decides the tenure on the basis of the life of the property; if it were an old building, then lenders would be more careful in approving a mortgage for the property. Some lenders may even refrain from a giving a home loan altogether for building above a certain age.

Approved Documents from Local Authorities
The borrower must possess all of the necessary documents from the local authorities such as the approved sanction plan, commencement, occupancy certificates and society registration documents. Banks seek these documents during legal evaluation of property.

Maintenance of Property
The level of maintenance of the property definitely plays a role in assessing its value. A well-maintained older building can still fetch a good valuation. Properties having maintenance issues will command a lower valuation.

The valuation phase of the home loan process is an important cog in the wheel of determining if a home loan should be approved as well as the value of the home loan that should be given. Being an important part of the process, it may be wise to consult a home loan advisor to understand how the valuation process works and whether your dream property is valued at what you think it is. It is better for a mortgage borrower to ask these questions before applying for a home loan to avoid heartbreak and ensure they make the best decisions. All the best homebuyers!

Sukanya Kumar,Founder & Director,RetailLending.com