Financial emergencies can occur at any time. And no matter how much you try to, you can’t predict all of them, at all times. Imagine that one day, you face an emergency that would require you to have substantial funds. But you don’t have that much of an amount; you just have a house that you cannot afford to sell. Then, what do you do in that case?
Under those circumstances, you can make good use of your house by taking a loan against the property. A loan against property means you can use your property as a mortgage to get a loan. This doesn’t mean you have to stop living in that house. You can actually continue to stay there and meanwhile, repay the loan through EMIs – Equated Monthly Installments. There is a limit of Rs.25 crore for LAPs, with home loan interest rates starting from 7.5% per annum.
Before getting deeper into the process of a loan against property and the eligibility criteria, below are some of its features you should know.
What is Loan against Property?
A Loan Against Property or LAP is a secured loan that banks provide for an asset pledged as a mortgage. This asset can be your house, land, or office property. Banks offer the loan as per the price of the property and the property will stay as collateral till the amount is repaid with due interest. LAP has become a preferred debt consolidation option over the years because of its flexibility. You can use the LAP amount for any of your financial emergencies or needs.
Features of Loan Against Property
When you have decided to go for the Loan Against Property, it’s important to keep a lot of things in mind.
- Property loans are secured lines of credit. An advance from your lender is secured by your immovable property or house.
- If you fail to repay your loan amount, your bank gets the right to do whatever it needs with the property. In most cases, they will put it on sale.
- Since the loan against property is secured, its eligibility criteria are also easy to meet. Additionally, interest rates aren’t that high.
- Banks will offer you the loan amount after getting your current property’s price calculated. Usually, a fixed percentage of the maximum value can be taken as a loan.
- If you go for this kind of loan, make sure that your property documents are ready. You will have to submit them to avail of the loan.
- Loan Against Property does not have any end-use restrictions. You can use the loan amount for any of your needs.
Documents Required for Loan Against Property
For salaried employees, you will need the following documents:
Address proof
Income Tax returns
PAN Card
Identity proof
Bank account statements for the previous three months
Salary slips
Property documents
For self-employed people, they need:
Address proof
Identity proof
All relevant documents of the mortgaged property
Form 60 or PAN card
Bank account statements for the previous 6 months
Property documents
Financial statements
IT returns
Eligibility criteria for getting a loan against property
Below is a list of criteria you need to fulfill.
- You must be an Indian-residing citizen
- You must have a regular source of income. And if you have your own business, you have to show your sizable funds or income
- Some banks also have an age bracket for this kind of loan. Make sure you know about it well in advance
- In addition, a credit score of at least 750 is necessary to maximize your chances of getting a loan against property. The documents required for a property loan must also be provided along with these requirements.
How to calculate the Loan Against Property?
To analyze the loan amount, the loan against property eligibility calculator uses the following criteria:
Remuneration every month
Date of birth
City
Loan tenure
Existing EMI or debts
Additional monthly income
CIBIL score
LTV ratio
Work experience for salaried individuals and business duration for self-employed
Factors that can affect your loan eligibility criteria:
Borrower’s age
These loans are more likely to be approved by lenders when the borrower is younger. It may be difficult for an individual nearing retirement age to secure such a loan.
CIBIL score
CIBIL scores below 700 can indicate a poor track record of loan repayment, which may lead to loan rejection. The higher your credit score, the easier it will be to sanction your loan, as well as the lower you will pay in interest.
Tenure
The provider of such a loan will assess the tenure you select. In order to determine whether a lender is confident in your ability to repay the loan, the lender will look at this factor.
Property documentation
The property papers are perhaps the most important part of the mortgage loan documents list. The LAP application may be rejected if any of these documents are not satisfactory.
Charges associated With Loan Against Property
When you go for Loan Against Property, you also need to know about the additional amount that the banks ask for, in addition to loan repayment.
Interest rate
Like any other loan, a fixed or floating rate of interest is charged by the borrower. This is paid through EMIs.
Processing fee
A one-time non-refundable fee has to be paid by the borrower.
Pre-payment or part-payment charges
People who have taken the loan on a floating rate of interest, they are not required to pay any amount for pre or part payment. But if you have taken the loan on a fixed rate of interest, then you will have to pay charges for part payment.
Foreclosure charges
Like part payment charges, individuals who take advantage of floating interest rates will not have to pay foreclosure charges. In contrast, borrowers who have taken the loan on a fixed interest rate will have to pay a nominal foreclosure fee.
EMI bounce fees
If a borrower is unable to pay the EMI on time, then they will be charged a penalty by the bank
Steps to apply for Loan Against Property
If you want to apply for Loan Against Property, then you have to follow the below steps:
Step 1:
Do your research properly and choose the institution you want to take your loan from.
Step 2:
Find out the market value of your property; this will help you calculate the loan amount you can avail of.
Step 3:
Check if you meet all the eligibility criteria for the loan, and also if you have all the documents ready. If not, then arrange for those.
Step 4:
Once you have all the documents ready, you can fill in the loan application, either by going online or visiting the nearby office of the financial institution.
Repaying the loan
A Loan Against Property is generally given for a long time of up to 25 years. Just like a home loan, you have to repay this loan in monthly EMIs; you can also choose to prepay a big amount beforehand if you have enough money.
