If you are eyeing a residential property and contemplating how much home loan you will get on it, you are subconsciously assessing your LTV (Loan-to-Value) ratio. Not sure what we mean? The following section will make things clearer.
What is an LTV ratio?
The percentage of loan extended by the lender to the borrower against a fixed property value is the LTV ratio. Lenders typically assess the LTV ratio to determine the risk of lending a loan to a borrower.
The LTV full form is Loan to Value, and your LTV ratio will depend on the kind of financial stability you can show to the lender. Housing finance usually covers anywhere between 75% to 90% of the total property cost, while the borrower puts down the rest as a down payment.
So, if you are planning on financing a large portion of the property value with the help of housing finance, a higher LTV ratio will be ideal and vice versa.
Remember, a higher LTV means a bigger loan amount, favourable loan terms, and lower down payment. In contrast, a lower LTV indicates a smaller loan amount, with usually a higher down payment.
Additional Read: Best Tips to Plan Your Home Loan Down Payment
How do LTV ratios work when it comes to housing finance?
Multiple factors determine your housing finance eligibility. The most prominent ones are:
- Stable income
- High credit score
- Previous and ongoing debts
Let’s look at each of them in detail and figure out where LTV fits in the picture.
- The higher your income, the better your chances of getting a higher LTV ratio. Meaning, if you make enough money, lenders will be more willing to extend a bigger loan amount, thus boosting your LTV ratio.
- If you have a high CIBIL score, ideally above 750, your chances of getting a loan at a higher LTV ratio also goes up. This doesn’t mean you have to take a large loan. It simply means you are eligible for one.
- Lenders will calculate the value of your ongoing debt, if any, against the amount of money you earn to approve an LTV ratio.
Additional Read: Some Factors That Impact Home Loan Interest Rates
Slabs and upper ceiling for Loan to Value ratio
The LTV ratio slabs and ceilings for housing finance fall under the purview of the Reserve Bank of India. As per the RBI guidelines:
- A lending institution can only approve up to 90% LTV if the loan amount goes up to Rs. 30 lakhs.
- If the total loan amount falls between Rs. 30 lakhs and Rs. 75 lakhs, the LTV ratio can go up to 80%.
- For a loan amount higher than Rs. 75 lakhs, the LTV ratio cannot exceed 75%.
The bottom line
Now that you know the LTV meaning and its implications on housing finance, you can apply for home loans at Tata Capital to receive an ideal LTV ratio.
We are one of India’s most reliable lending institutions, offering attractive LTV ratios for home loans. Our housing finance options ensure that you get competitive interest rates along with a speedy disbursal of funds and flexible repayment terms.
Click here on our website to check out your home loan eligibility criteria and apply today!