Loan against Property refers to the secured loan category like home loan where the borrower gives a guarantee by using his property as a 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.
Typically these loans are used to start or expand business or to renovate your house. But it can also be used to repay existing high rate loans.
? The maximum loan amount varies from bank to bank. It could range from Rs. 10 lacs up to Rs.25 crs. The exact amount depends on your property valuation, income and of course repayment capacity.
? The rate of interest is usually 9%+, but depending on one’s profile and the Bank’s criteria, it may vary.
? The maximum loan amount can come upto 50% of property value for commercial setups and up to 75% for residential properties.
? The maximum loan tenure is 15 years.
? You require security, collateral or guarantors for obtaining a Loan Against Property. Most banks do not accept properties that are on lease or that are based on power of attorney.
? The maximum age limit of eligibility is 60 years.
? You can choose either Fixed or Floating rate of interest. You also have an option of changing from Fixed to Floating interest rates and vice versa once every year.
? A processing fee is usually 0.05% to 3% of the loan amount and is payable upfront. This fee however will be deducted from the disbursal amount payable to you. You should always ask for the 0% processing fee or negotiate the processing fees.
? You pay your loan in EMIs through post-dated cheques or through ECS to debit your Bank account through ECS with the EMI amount.
? You can also prepay the entire loan outstanding anytime after 180 days of availing the loan. Pre-payment charges will be levied accordingly. If you intend to do so, please ask for the pre-payment amount to be waived or a reduction in the penalty charges.
? You can also increase or enhance your loan loan against property eligibility. For that you need to show income of atleast three persons, most preferably a family member or a business partner.
Also know these pointers before availing a LAP:
? Decide on the basis of what you really need. Also see if the cost fits into your estimated budget.
? Compare the quotations given and interest rates from 3-4 banks, select the one which offers maximum benefit and serves your purpose.
? Also determine the tenure of the loan. The EMI may come less for longer tenure, but the total interest outgo will be higher.
? Know all about processing fees and time. Some banks may waive the processing fee for processing loan but they build this cost on their interest rates.
? Consider pre-payment options. All banks charges 2% – 3% of the loan in case you decide to pre-pay the outstanding amount.
? Default in payments results in penalties. It can also adversely affect your credit history and profile. So make sure to make your payments on time.
? Make sure that all deals and offers agreed upon are supported by relevant papers. So make sure you always ask for a letter in a banks letter-head mentioning the likes of, exact rate of interests, processing fees, pre-payment charges along with interest-schedule.
? Also before signing the documents, make sure you recheck all terms and conditions.
? Do not at any circumstance give any false information. This may amount to fraud and could land you in trouble.
? Do not sign any blank documents. Even if it takes you a few hours to fill-up the form, please do so. Do not leave anything for the executive to fill-up.
? Finally, once you have received a loan do your best to pay it back as quickly as possible. Banks make their money off the interest they charge and the sooner you pay back a loan the less money you will have to pay in interest.
Loan Against Property FAQs
Who can avail a Mortgage Loan?
Both Salaried as well as Self-Employed people can avail Mortgage Loan, irrespective of the income.
Which factors determine the eligibility of a mortgage loan?
The general factors taken into account while determining the eligibility of a loan against property are listed below:
2. Age (Min. 21 Years)
3. Property Valuation
4. Existing Liabilities (if any)
5. Current Work Experience
6. Financial Documents
7. Number of Dependants
How much loan can I get?
You can get a LAP up to 80% of the registered value of your property depending on the Bank’s policy and the property type and valuation.
How would the value of my property be determined?
The value of the property would be determined through a valuation conducted by the Loan Provider.
What is the difference between a Home Loan and Loan against Property?
There is a huge difference between a Home Loan and a Loan against property. Home Loan is taken only for the purpose of buying a residential property whereas a Loan against Property can be taken for any purpose.
What are the stages involved in availing the loan?
5. Sanctioning of the Loan
Is there any processing fee charged by the Bank?
Yes, a nominal fees and charges are to be paid to the Bank depending upon their term and conditions.
What are the documents required for applying for a loan against property?
1. Application form with photograph
2. Identity and Address Proof
3. Latest Salary Slips
4. Form 16
5. Bank Statements (Last 6 months)
6. Processing fee cheque
1. Application form with photograph
2. Identity and Address Proof
3. Proof of business existence & Education Qualifications.
4. Last 3 years ITR
5. Last 3 years P&L and Balance Sheet
6. Bank Statements (Last 6 months)
7. Processing fee cheque
How much time does the Bank take to disburse the loan?
The processing of the loans usually takes 7 to 10 working days once all the documents are submitted. It also depends upon your profile and documentation.
Does the property have to be insured?
Yes the property has to be insured against fire, flood, earthquakes and other appropriate hazards during the tenor of the loan.
How can I repay my loan?
The repayment of loan is done through Equated Monthly Installments. It can be paid through Post Dated Cheques (PDC) or Electronic Clearance System (ECS)
Can I pre-pay my loan?
The loan against property can be pre-paid along with the pre-payment charges. Usually the bank charges 2% of the principal pre-paid.
What types of property can be accepted as security for getting loan against property?
Residential property and commercial property are the most eligible securities for loan against property.
Some banks also lend against industrial property in some areas.
Banks can lend against self occupied property, rented out property and even vacant property. However, interest rates on loan against vacant property may be higher than those on self occupied property.
Most banks would insist upon a clear and marketable title with full property chain.
Property offered as security must be located within municipal limits and must have been constructed as per the approved map plan.
No other bank or individual should have any claim on the property.
What types of property are not eligible as security for loan against property?
Banks do not give loans against agricultural land. Only crop loans can be availed against agricultural land.
Vacant or unused land is not eligible to be offered as a security for availing loan.
Buildings and property located in gram panchayat areas, lal dora areas and unauthorized areas are not accepted as security by most banks.
Property bought on power of attorney (PoA) cannot be offered as security for loans in most parts of India.
Property with broken chain in the title documents is typically not accepted.
Very small properties (less than 600 sq ft in size) are mostly not eligible as security.
How do banks value the property when deciding eligibility for loan against it?
An independent valuer appointed by the bank would visit the property, take its measurements and check whether the construction is as per the approved map plan or not.
The valuers would base the value on current prevalent property prices in the locality, area of the property in square meters or square feet, age of the property and its condition.
Note that the value is not related to the circle rate or ready reckoner rates as these may not always be in line with the market rates.
For higher ticket size loans (Rs. 1 cr and above), banks may get valuation reports from two independent valuers and take an average of the two to arrive at value for the purpose of calculating maximum loan eligibility based on LTV.
Why does loan against property eligibility depend upon income?
Loan servicing capability refers to the EMI you are capable of paying after meeting living expenses based on your standard of living.
The maximum EMI is limited to the surplus available after meeting essential and lifestyle expenses like those on food, travel, entertainment, family, clothing, medical treatment and similar such expenses.
For the purpose of determining loan eligibility, most banks consider maximum EMI paying capacity as 60% to 70% of the net monthly income after taxes and deductions.
How does eligibility calculator calculate eligibility in case of businessmen?
Income of business concerns such as companies, partnerships and proprietorships is taken as eligible income. We can also add non cash expenses such as depreciation to arrive at eligible income and increase loan amount eligibility.
To be eligible, the business must be registered and at least three years of income tax returns must be available.
It is possible to add income from other sources like rent and interest to help increase eligibility.
What are the various types of income that can be added to calculate loan against property eligibility?
Any regular income that is supported by documents is eligible to be considered for the purpose of determining eligibility using the loan against property calculator.
Examples include income from salary, business, profession, interest, teaching, royalty, rent and fees. In some cases bonuses and sales incentives may also be added to income. However, reimbursements, income from shares, capital gains and undocumented income cannot be considered.
The income must be supported by income tax return and Form16 or Form 16A.