According to the Reserve Bank of India’s (RBI) latest data on ‘Sectoral Deployment of Bank Credit’, credit outstanding toward the housing sector increased to around ₹10 lakh crore between 2022 and 2024. Further, the segment of housing loans is expected to account for about 13% of India’s GDP by the end of 2025 against 12.3% in 2023.
These numbers indicate a steady rise in the demand for loans, underscoring the importance of legal and technical verifications of housing loans to prevent legal issues and loan defaults.
This article examines the importance of technical verification and the different parameters credit officers must consider before approving loans.
Technical Verification in the Housing Loans Process and Its Importance
When you’re applying for housing loans, one important step you might not hear much about is the technical verification. This is when experts physically visit the property to make sure everything checks out—right from the construction quality to whether the details match what’s in the paperwork, like the sale deed or allotment letter.
The main purpose of this step is to work out the property’s true market value. It’s not just about what’s written in the documents—it’s about what the property is actually worth, based on its condition, layout, and overall structure.
Usually, this verification is done by independent professionals or in-house technical officers. They prepare a detailed report that helps the lender decide how much of a loan can safely be given for that property.
Example
Let’s assume that the property in discussion’s projected market value is ₹45 lakhs, and the bank’s Loan-to-Value (LTV) ratio is 75%.
In this case, if the market value of the property matches the projected value after the legal and technical verification, the eligible loan amount will be 75% of ₹45 lakhs, i.e., ₹33.75 lakhs.
However, if the verification report determines that the market value is ₹40 lakhs, the bank will calculate the loan on ₹40 lakhs, i.e., 75% of ₹40 lakhs = ₹30 lakhs.
This means that the borrower has to pay a higher down payment.
Housing Loans: Key Components Included in a Technical Verification Report
Let’s explore some of the key components inspected and documented in a technical verification report:
1. Name and Address of Owners
The name of the property owner, along with his/her address and contact details, should match the legal documents included in the loan application. It is worth noting that the name, address, and contact number of each owner are assessed in case of joint ownership.
Typically, the loan applicant includes a sales deed or an allotment letter in their loan application, which technical officers eventually verify when they visit the property.
2. Property Location
Next, it is crucial to verify the property’s location by assessing all the key details, including the survey/plot number, door/house number, S.No/village, taluka, and district.
Then, the next step is to identify whether the property map or layout is approved by the issuing authority. If yes, cross-check the issuing authority and whether the property lies within their jurisdiction.
3. Cross-checking the Property Dimensions and Boundaries
The technical officer must cross-check the boundaries of the property with the information in the lender’s deed. The North, South, East, and West boundaries of the property are inspected and compared with the details mentioned in the deed.
Further, the total area of the property, including the built-up and carpet area considered for valuation, should be verified and mentioned in the technical report. This allows lenders to determine the market value and the amount of housing loan that can be approved.
4. Property’s Age
The property’s age is also a key aspect lenders must consider while approving housing loans. Typically, the LTV ratio of properties constructed over 25 years ago is low due to multiple factors, including structural depreciation, resale or redevelopment prospects, and higher maintenance.
Determine the maintenance condition of the property (if already constructed) by inspecting the plumbing, flooring, and common areas. Rate the property on a scale of good to bad to calculate the resale value accurately.
Housing Loans: Key Steps Involved in Technical Verification
Here’s what a standard technical verification in housing loans looks like.
Step 1
The bank sends a technical officer or a chartered expert on its behalf to inspect the site once it receives the housing loan application and verify the location, dimensions, and quality of the structure.
Step 2
The officer creates a verification report that includes all the key details required to make informed lending decisions.
Step 3
Once the property receives the green light from the legal and technical verification team, the bank or the financial institution is ready to finance your housing loan.
Wrapping Up
Legal and technical verification in housing loans isn’t a formality, but key steps to evaluate a property’s market value and safeguard borrowers and lenders from legal disputes. Further, it also maintains transparency during the entire process, preventing financial risks.
Apart from the components mentioned in the article, credit managers and technical officers must also include answers to the following questions:
- Is it occupied by the owner? If occupied by the tenant, how much is the rent?
- Is it covered under any state/central government enactments?
Technical verification is a key process in the lending lifecycle, and at Finezza, we strive to provide advanced data-driven solutions to streamline lending operations.
From document verification to lending lifecycle management, every solution is developed to improve the credibility of our clients’ services, including credit evaluation and loan management.
Book a demo today to know more.
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