When you take a loan from a bank for purchasing a house or a land, you have to make an initial payment first known as down payment. According to the Nepal Rastra Bank directive, banks and financial institutions are not allowed to invest 100% when buying any house or land. They can only provide 50 to 60 percent of the collateral valuation. Therefore, the banking institution has been providing up to 60 percent of mortgage to the first home buyers. The remaining 40 to 50 percent should be invested by the buyer himself.
Before providing the loan, banks make sure about how much loan can be given by mortgaging the property. This process is known as collateral valuation. The bank calculates the fair market value from the government value of your house and the current value. You should know that every year the government evaluates real estate in its own way. However, there will be a big difference between the current price and the government valuation. The banks then provide the loan according to the collateral value. In case of constructing a house, you have to submit the estimated cost of the house designed by the engineer to the bank. Therefore, it is quite difficult to assume the amount of down payment on your own.
Usually, banks hire an engineer to evaluate the collateral value. The work of the engineer is to go to the field, monitor the property and calculate the fair market value. If you are buying a house or land worth Rs 15 million, its fair market value does not have to be 15 million rupees. This is because its government valuation and market price will be different.
If the market value of a land is Rs 10 million, then the government valuation will be around Rs 3 million. Adding 70 per cent of the market value of the land i.e. Rs 7 million and 30 per cent of the government valuation i.e. Rs 9 lakh, the fair market value will be Rs 79 lakh. Thus, the bank will invest 50 to 60 percent of Rs 79 lakh. For a personal housing loan, banks lend up to a maximum of Rs 1.5 crore if your collateral and source of income are justified.
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