Loan Against Property - Low Interest Rates, Eligibility, Documents Required

Loan Against Property – Low Interest Rates, Eligibility, Documents Required

 

Concepts & FAQ’s Loan Against Property

Loan Against Property

A loan against property is a loan against your house or a plot. It’s cheaper than that of a personal loan or loans against security. The right of ownership of the property is still with the borrower, and if he/she is unable to repay the loan amount, he/she can sell the property to pay off the debts. In other words it actually means – a loan given or disbursed against the mortgage of property.
Usually, banks and other lenders extend a loan against property as a security, for up to 50 per cent of the market-value of the property. However, the extent of the loan is also subject to your eligibility as per income norms. It is available for both salaried and self-employed persons and against commercial as well as residential property.

Steps involved in the application process are

  • Application
  • Processing
  • Documentation
  • Sanctioning of the loan
  • Valuation and legal check
  • Disbursement of loan

Key factors to consider for Loan Against Property

What are the documents required to avail a loan against property?

  • You require to fill the loan application form with 2 passport-sized photographs.
  • You need an identity and address proof.
  • You need the last 6 months salary slips if you are salaried, and certificate and proof of business and income if you are a self employed professional or a businessman.
  • You need a form 16 if you are salaried, and the last 3 three years Income tax return and Profit and Loss and Balance Sheet if you are self employed.

Things to know before applying for Loan Against Property

If you own a self-occupied residence, a commercial property or even a plot of land, you are eligible for a loan against property. The banks or lenders check to see if the property is free from encumbrances. Banks insist that you have unrestricted full control over the property.

If you need a lot of money in a short time, avail LAP. These loans have lower interest compared to most loans and long repayment tenure.

  • Compare LTV (Loan To Value Ratio) offered by different banks for loan against property and lock the best deal.
  • Loan to value ratio popularly called LTV is the ratio between the loan offered by the bank and the market value of the property which is being mortgaged.
  • Private banks generally sanction a loan to value ratio of around 70-75% of the cost of the property. For public sector banks the loan to value ratio is around 60-65% of the cost of the property. Loan to value ratio depends on the internal rules of the bank and also the manner in which the property is evaluated.
  • Banks offer a higher LTV for a residential property vis-à-vis a commercial property. The residential property is considered to be safer than a commercial property. Banks prefer less risk on the property and are averse to taking over the property in case of defaults. Banks prefer self-occupied properties over rented out properties, when sanctioning loan against property.
  • LAP needs to be availed in the name of one or more individuals and not a Corporate or Business Entity. More than one person can avail LAP provided all co-owners apply as co-applicants to the loan.
  • Floating rate loans do not charge a prepayment penalty.

Repayment of the loan against property:

  • You can repay the loan against property through EMIs (Equated Monthly Installments), Post Dated Cheques or even through Electronic Clearance System (ECS).

Security for loan against property:

  • The title deed of the property is the security for LAP. The title must be clear and marketable and free from encumbrance. The property should not have an existing loan or mortgage against it. The property should not be under litigation. Loans have a maximum tenure of 15 years.
Read about:   Mortgage Loan Officer I Salary

Thinking of buying a Loan Against Property ?

To be absolutely sure of WHAT TO LOOK OUT, talk to IndianMoney.com on the phone for FREE financial consultation.

Expert Financial Advisors from IndianMoney.com would provide you unbiased, correct and up to date information so that you can make an informed financial decision.

Frequently Asked Questions

What would be my loan eligibility?

The banks / FIs will decide the loan amount based on your repayment capacity. Repayment capacity takes into consideration factors such as income, age, qualifications, number of dependants, spouse’s income, assets, liabilities, stability and continuity of occupation and savings history. However the eligibility of loan shall not exceed 50-60% of the cost of property in majority of cases.

Who can be co-applicant to the loan?

You can include your spouse as a co-applicant to the Loan. His / her income can be added to enhance the loan amount. However all co-owners of the property should necessarily be the co-applicant/s.

What will be the tenure of loan?

The tenure of the loan depends from bank to bank. However the maximum period of loan would be 15 years. Repayment will not ordinarily be extended beyond the age of retirement (if you are employed) or on attaining 65 of age in case of self employed.

How do I repay the loan?

You repay the loan in EMIs (Equated Monthly Installments) which comprises of principal and interest. Repayment by way of EMI commences from the month following the month in which you avail the loan.

Can I repay the loan ahead of schedule?

Certainly. You can repay the loan ahead of schedule subject to payment of pre-closure charges as applicable. Pre-closure charges would be in the range of 2% – 5% on the outstanding principle amount, which varies from bank to bank.

Does the property have to be insured?

You will have to ensure that the property is duly and properly insured for fire and other appropriate hazards, as required by the banks/FIs, during the tenor of the loan.

Do co-applicants need to sign?

Yes. All the co – owners of your property will have to sign up as co-applicants. For a sole property owner or applicant, one adult member in the family will need to sign up as a co applicant. In case of partnership firm or a company, partners and promoter directors respectively need to be co-applicants. To know more about Loan against Property, call us on 080 67974000 and learn from our experts!

What are the benefits of loan against property?

1.Lower interest rate

A lower interest rate on the borrowing from a loan against property is probably the most important benefit available for the borrower. This saves a lot of expense for the loan and hence makes the loan more affordable for the person. The interest rate is lower than other options like a personal loan or a credit card borrowing where the funds can be used for a wide variety of purpose without informing the lender.

2.Easier to obtain

A loan against property is also easier to obtain in terms of clearance and other factors once the necessary security is available. If the property is available, it does not have a mortgage and can be given as a security; it will not take much time for getting the entire loan cleared. This is because the specific steps related to the loan against property will ensure that the process is completed without much wastage of time.

Read about:   Easy Mortgage Deed format- Obtain free authorized doc pattern

3.Adequate security

The presence of a property often proves to be an adequate security feature of the loan. Like several other assets like shares, which might witness a massive reduction in their value, a property does not witness such a large change in the position. In several cases, the property value actually rises with each passing year and in such a situation it proves to be an adequate security for the purpose of the loan.

4.Standard condition

There are several conditions that are specified for a loan against property. This means that there are standard conditions that are related to this loan and the individual has to ensure that he/she is able to meet them. The conditions include the mode of disbursement of funds, the manner of repayment, interest calculations and so on. This removes a lot of doubt from the mind of the borrower and the transaction can also be understood easily.

5.Larger loan possible

The other benefit for a loan against property is that a larger amount of loan is possible. This depends upon the property and its value, which allow a bit of flexibility to the borrower. If the funds required are slightly larger than what the individual can raise through other sources then he/she can go for the loan against property to raise the necessary amount of funds. There is usually no major restriction in this regard as long as the loan against property can be serviced and the person then is able to complete the goals that are related to the requirement of funds.

6.Use of idle property

In many cases, there are properties that are lying unused for a lot of people. This will not be beneficial in any way and at the same time various circumstances might also make it difficult to raise funds from the property unless it is sold off. In such a condition, using this to take a loan against the property will be a very good way to ensure that the best use is made of the property that is actually lying idle. This will also ensure that proper use is also made of the asset available with all those people who want to raise funds.

List of documents for working professionals

1. An identity and residence proof.

2. Proof of an educational qualification.

3. The Registration Certificate or Business License.

4. Proof that the business exists.

5. P&L for 3 years and balance sheets.

6. ITR filed (Both self and Company) for the past 3 years.

7. Bank statements of the past 6 months.

Loans against property for working professionals

1.Loan Against Property for Doctors:
Doctors can avail loan against property to finance business expenses like buying new medical equipment, expanding an existing nursing home or a dental clinic.
Doctors can avail residential property loans and even commercial property loans at best interest rates with flexible repayment tenure. Doctors can get LAP from Rs 10 Lakhs to even Rs 5 Crores.

2.Loan Against Property for Engineers:
Engineers need money to fund their business. The cost of Machinery, Tools required to run the business, equipment running on the latest technology, construction and renovation, all this costs a lot of money.
Engineers can avail LAP at 60-70% of the market value of the residential property. Loans are disbursed quickly with hassle free loan documentation.

Read about:   Frost Bank Review |

3.Loan Against Property for Chartered Accountants
A chartered accountant can easily grow his business or finance extra working capital needs with loan against property. Money can be used to extend office premises, purchase office furniture and so on.
There are many banks and NBFCs willing to sanction LAP to chartered accountants.

Avail Loan Against Property for multiple properties

1. Loans for residential properties:
You can avail LAP against self-occupied or rented out residential properties. If the property is co-owned by minors/HUFs or Trusts the loan against property is not sanctioned.

2. Loan against commercial properties:
You can avail LAP against an occupied office premise or even a shop. You can avail LAP to buy a commercial property like an office or a shop.

Insurance for loan against property

Some banks offer insurance plans for loan against property. This plan could be crucial on an untimely demise. Not availing insurance for loan against property can shift the burden of loan against property EMI repayments to your family.

If you avail an insurance plan for loan against property, the bank will pay back the outstanding loan and your family will not be burdened with loan EMIs.

Balance Transfer of Loan Against Property:

Balance transfer of loan against property means transferring your existing LAP from the current lender to a new lender. This is done to avail lower interest rates or an additional loan amount.

In balance transfer of loan against property, you transfer the entire unpaid principal loan amount from the current lender to the new bank.

There are firms which specialize in helping you save on interest, by arranging balance transfer of loan against property. These firms negotiate with banks or NBFCs on your behalf and get you the cheapest interest rates, through balance transfer of loan against property. Not many people are aware of the facility called balance transfer of loan against property.

Documents required for balance transfer of loan against property:

1. You require the loan statement from existing bank.

2. The original papers from the existing bank.

3. You need KYC like PAN, Aadhaar and Address Proof.

4. Bank statements

5. Salary Slips or Income statements.

Opt for balance transfer of loan against property when the current lender charges too high interest or you need an additional amount to finance a marriage, money for medical emergency or higher education.

Banks check your age (Minimum age of 21 years) and the maximum age of 58 years, at the time of closure for salaried employees. The maximum age is 65 years at the time of closure for self-employed.

Process for balance transfer of loan against property

Send the application

Processing of the loan

Submit the necessary documentation

Valuation of the property

Sanctioning of the loan

Disbursement

Documents required for balance transfer of loan against property:

(Salaried)

The application form with photograph

An identity and address proof

At least 3 months of salary slips

Form 16

At least 12 months bank statements

The latest outstanding letter of the current lender

Loan sanction letter

Cheque for the processing fee.

Property papers

(Self-employed)

The application form with photograph

An identity and address proof

Proof that the business is in existence

Last 3 years ITR

Last 3 years audited P&L and balance sheet.

At least 12 months bank statements

The latest outstanding letter of the current lender

Loan sanction letter

Cheque for the processing fee.

Property papers