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Loan to value (LTV) Rate Formula

Buying a home is a huge step in anyone’s life. It’s not just about finding the perfect space to call your own; it’s also about navigating the often complex world of home loans. In Cambodia, where the real estate market is rapidly evolving, understanding the ins and outs of the home loan approval process is important. Khmer Prosperity Loan guide from 0 to 100 about how the loan approval process works and what to be aware of at each stage in Cambodia.

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Importance of Home Loan Approval

For most Cambodians, getting approved for a home loan is super important because they can’t make a lump-sum payment to purchase a new house like in other developing countries. A home loan is their only option to disburse the amount you wish to pay off the purchase price from a financial institution. Approval or rejection becomes the key to deciding if the bank will send the desired amount to the home seller as a settlement. Therefore, an applicant’s loan request should be achievable and within their financial ability to turn the dream home into a reality.

Overview of the Cambodian Real Estate Market

price trends for properties for sale in Cambodia

Before going into the home loan approval process, we suggest you know the current Cambodian real estate market. Phnom Penh property prices in Cambodia’s bustling capital are projected to experience a 5% increase in 2023. While each industry is expanding at a fast pace, Cambodians have more demands on real estate, especially in Phnom Penh, with tons of high-paid tourism opportunities. Other than that, the real estate market has experienced significant growth because of economic development, foreign investment, and urbanization.

Types of Home Loans in Cambodia

which loan is right for you

Fixed-Rate Mortgages

A mortgage loan type known as a fixed-rate mortgage has an interest rate that stays the same for the duration of the loan. As a result, the borrower will continue to make equal monthly principal and interest payments, offering stability and predictability throughout the loan’s term. You can get a loan from Khmer Prosperity Loan by using a 6.99% low fixed rate to avoid any fluctuating repayment amount. We apply this feature to different loan products like car loans as well.

Variable-Rate Mortgages

As an alternative to conventional fixed-rate mortgages, variable-rate mortgages (VRMs) give borrowers the adaptability they need to adjust to fluctuating interest rates. VRMs have variable interest rates that are subject to change depending on the state of the Cambodian market, in contrast to fixed-rate mortgages, where the interest rate is fixed for the duration of the loan approval process. Khmer Prosperity Loan suggests you not choose VRMs unless you have a high and steady income to support the fluctuating repayment. Don’t be allured by the short-term low interest and cause the long-term unrealistic high interest afterwards.

Eligibility Criteria

Citizenship and Residency Requirements

how bank decide your home loan eligibility

The first checkpoint in your home loan approval process is understanding citizenship and residency requirements. Generally, loan providers prioritize Cambodian citizens, but there are options for expatriates, too. Foreigners will not get the best offer on a property because the Cambodian government has set some conditions for them to stabilize the price of property in Cambodia.

Age and Tenure Constraints

In practice, most of the employees determine retirement age 55 or 60 in their regulations in Cambodia. This statistic reflects that most Cambodians don’t have sustainable income, which supports the fundamentals of the loan approval process. Finance institutions understand this situation is happening in Cambodia, so they generally set an age requirement of 18 to 60. For example, Maybank Cambodia limits their borrower age between 18 and 65 during the loan period.

Besides age, applicants have to be aware of the tenure that is offered by the loan providers. Longer loan tenure may affect your monthly repayment to ease your burden. Try to make sure banks make an offer that fits within your financial ability. For example, Maybank Cambodia allows applicants to do their loan transaction for up to 25 years (300 months), while PPC Bank only offers 20 years (240 months) to their housing financial product. A $70,000 property will have at least a $53 repayment gap every month. Each constraint differs from lender to lender; check your financial situation or needs to make sure everything is in order.

Employment Stability

In Cambodia, as in many other countries, employment stability is an important factor that loan providers consider during the loan approval process. Whether applying for a personal loan, agriculture loan, or any other type of credit, borrowers’ employment stability plays a significant role in determining their creditworthiness. These loan documents are only applicable to employees but not business owners and SME company loans; they have to provide a copy of a letter of offer or employment letter to the loan provider before the process begins.

employment status

Loan-to-Value Ratio (LTV) and Its Impact on Home Loan Approval

LTV stands for Loan-to-Value ratio. It is a financial term used in the context of lending, particularly in the real estate and mortgage industries. The Loan-to-Value ratio expresses the relationship between the amount of a loan and the appraised value or purchase price of an asset, often a property. LTV is expressed as a percentage and is calculated by dividing the loan amount by the appraised value or purchase price of the property and then multiplying by 100.

LTV often appears in the real estate and mortgage sectors to calculate the loan ratio between the loan amount and the appraised value or purchase price of an asset. Before starting the loan approval process, loan providers have already set a certain percentage of property. Applicants prepared without taking more than the LTV, which was already stated by the financial institution. Besides, Khmer Prosperity Loan will give you some insight about how to use LTV to get notification of pre-approval letters without going through the steps of the application in the usual way

loan to value (LTV) ratio formula

A lower loan-to-value ratio (LTV) suggests that the borrower has more equity or a higher down payment on the home. For instance, an 80% LTV indicates that the borrower has promised to make a 20% down payment after successfully going through the loan approval process. 

Loan providers use LTV as a metric to assess the applicant’s risk because the borrower has less equity in the property; a higher LTV indicates a higher risk for the loan providers.

Here are the maximum permissible LTV ratios for various banking loans:

  • Maybank Cambodia: Up to 80% of property value
  • PPC Bank: Up to 80% of collateral value
  • SBI LY Hour Bank: Loans of up to 95%

Applicants who have a good credit score can negotiate with reliable loan providers because their chances of loan approval are almost 100%. In such cases, borrowers can lower the LTV to 50% to request a pre-approval feature. Typically, this privilege has to be requested manually, so the documents are signed and funds are disbursed earlier than other applicants do in the loan approval process.

Understanding the Loan-to-Value ratio is essential for both borrowers and loan providers, as it influences loan approval, interest rates, and mortgage insurance requirements. Lower LTV ratios generally result in more favorable lending terms for borrowers, while higher LTV ratios may lead to increased scrutiny and potentially higher costs.

Loan Application Process

what happens during the mortgage loan approval process

Steps Involved in the Application

  • Submit Your Application: Complete the loan application, providing accurate and detailed information.
  • Document Review: The loan provider checks your financial documents, verifying your eligibility criteria.
  • Property Appraisal: A professional assesses the property’s value to ensure it aligns with the loan amount.
  • Credit Check: Your credit history takes center stage. A thorough examination ensures your financial reliability.
  • Loan Approval: Once everything checks out, you receive the loan approval, paving the way to homeownership after completing the loan approval process.

Importance of Accurate Valuation

the importance of accurate property valuation

Risk Assessment for Loan Providers:

Accurate valuation helps financial institutions assess the risk associated with providing a home loan. They also consider the loan amount to align with the actual value of the property when there are immoral deals done before. Some sellers try to mark up the purchase price to get a higher loan amount.

Protection for Borrowers:

Accurate valuation protects borrowers from overpaying for a property. If the property is undervalued, it may lead to the borrower paying more than the fair market value, causing financial strain. The value analyst is to protect the buyers by proving the property has a certain value so it can show to the following buyer to complete the selling next steps. It is not a supporting document but an essential document for all real estate transactions in Cambodia.

Legal and Regulatory Compliance:

Proper property valuation is often a legal and regulatory requirement. It ensures that the lending process complies with local laws and regulations, protecting both the loan providers and the borrower from potential legal complications.

Facilitation of Property Transactions:

Accurate valuations facilitate smoother property transactions. Both buyers and sellers benefit from knowing the fair market value of a property, reducing the likelihood of disputes and ensuring a fair and transparent real estate market.

Investor Confidence:

Reliable valuations enhance investor confidence in the real estate market. Investors are more likely to participate when they can trust that property values are accurately assessed, minimizing the risk of financial loss.

Loan Approval Process

Average Processing Time

  • Varied Processing Times: The loan approval process varies. While some loan providers work swiftly, others may take more time. As a home lending specialist at Khmer Prosperity Loan, we’re here to help you complete the loan approval process within 24 hours.
  • Proactive Communication: Stay in touch with your loan providers for updates. Proactive communication can expedite the process.

Loan Disbursement Process

Follow our professional advice to receive the loan disbursement correctly will save you much time:

  • Completed Documentation: Ensure all necessary paperwork is in order, including signed documents. This is your green light for the disbursement process. Some of the loan providers will also need you to visit their branch for final verification after completing the loan approval process.
  • Satisfactory Appraisal and Inspection: The property’s appraisal and inspection should meet the loan provider’s standards. You’ll need to be well prepared for your property because the inspector might visit there without giving any notice. Any illegal activities like drugs and scams, which are stated in the terms and conditions, will lead to failure disbursement.

Closing Costs: Property Verification for Lenders

Congratulations! You’ve gone through so many steps to get to the final stage – closing the loan account. Typically, there’s a charge for account closing. After paying off the entire loan, the contract of sale is going to stop here, and borrowers should go to the branch and request a settlement letter on any business day.

  • Legal Fees and Stamp Duty: Budget for legal fees and stamp duty. It’s like the admission fee to the homeownership club.
  • Property Taxes: Be aware of property taxes and allocate funds accordingly. Read the details announced by the Cambodian government from time to time to enjoy tax returns by submitting the supporting documents and bank statements in order.

Conclusion

After reading this comprehensive article, I see that getting an instant housing loan is not a challenging task. You will have a better understanding of LTV and why it is important to complete all real estate transactions. Unlike quick loans, housing loans need additional steps to make sure the deal is fair and transparent. Contact your trusted financial advisor, Khmer Prosperity Loan; we can help you find the best-fit broker, or you can get a low-interest-rate housing loan to turn your dream home into a reality.

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FAQs (Frequently Asked Questions)

Q1. What are the steps in loan processing?

Loan processing involves steps such as application submission, document verification, credit check, appraisal, underwriting, loan approval, closing disclosure, closing, funding, and loan servicing.

Q2. What is the interest rate for a home loan in Cambodia?

Interest rates can vary among loan providers and change over time. It’s advisable to contact local banks or financial institutions directly for the most accurate and current information on home loan interest rates in Cambodia.

Q3. What happens after loan approval?

After loan approval, the borrower proceeds to the closing stage. This involves signing the final loan documents, fulfilling any remaining conditions, and completing the transfer of funds for the property purchase.

Q4. Can a foreigner get a mortgage in Cambodia?

Typically, foreigners may need to meet specific criteria, such as having a valid visa, proof of income, and sometimes a down payment. Regulations can change, so it’s advisable to inquire directly with financial institutions.

Author
Vannak Sen

Vannak Sen is Khmer Prosperity Loan's dedicated financial advisor. His expertise lies in guiding entrepreneurs through the loan process with ease. Vannak’s articles offer simple, actionable advice, helping your business navigate the financial landscape and thrive. For personalized, clear, and practical strategies that resonate with the Cambodian business community, rely on Vannak’s insights.

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