If you have been thinking about getting a loan for sometime now, one possible scenario which might have crossed your mind is using your property as collateral for the loan. Also known as a loan against property, mortgaging is one of the most popular forms of secured loans available in India, however, navigating your way around them can be tricky and confusing to understand.
Thus in today’s article, we will share with you everything you need to know about loans against property in India and how you can secure one today. Without further ado, let’s get started.
What Is Loan Against Property?
One of the first and most important aspects we need to understand is the meaning of the term, loan against property. Sometimes referred to as mortgaging, it can simply be understood as a secured financial lending instrument through which you can secure a lump sum amount as a loan by pledging your asset as a security for the loan. These loans typically arrive with low rates of interest and offer a large loan amount (close to 85% of your property value) since the risk for the lender is less in these instruments.
One of the best aspects of a loan against property is the fact that almost anyone with a property to their name can avail of their features, despite the fact if it is a commercial or residential property. Since typically most properties, especially self-owned ones, arrive with high net worth, using them as collateral almost definitely fetches a hefty loan amount at a comparatively low rate of interest.
Now that you are familiar with the basics of a loan against property let us understand the list of documents you will require to apply for one.
- Title deed of the property, which clears, mentions you as the owner.
- Sale deed of the property
- Utility bills and other bills relevant to the property
- Tax receipts provided by the government
One of the most important aspects to consider in this respect is the fact that if you are the co-owner of the property, you can only use it as security for a loan if the other owner is on board with the idea. Without their NOC, which is a legal disclaimer, you cannot proceed with the transaction, thus making it mandatory for both of you to give the go-ahead via written consent to the lender.
Along with this, another important factor to consider is the LTV of your property or, in simple terms, the current market value of your property. LTV is the industry acronym for Loan to Value, and lenders across the country take this into account while assessing your loan application. Depending on the exact terms of the loan, you can secure an LTV in the range of 40% to 80%, meaning that you get a loan amount equivalent to 80% of the market value of your property.
Although LTVs are an attractive financial lending instrument, lenders across the country maintain a stringent eligibility criteria in order to avail the benefits of this instrument, the most significant of which are as shared below.
If you are a salaried employee in either the public or the private sector, with a property to your name and having a fixed monthly income, you will be eligible to apply for LAPs. Along with this, you also need to be between the ages of 33 years and 58 years to secure the application form.
If you are a self-employed professional with a demonstrated history of stable income and between the ages of 21 years and 70 years, you can secure a loan against your property. However, in most cases, the lender might inquire for your last three years’ ITR reports as proof of income.
Along with this, irrespective of your employment type, lenders will take into account a variety of factors to assess your loan application, such as
- Credit Score: Ideally, you will need to have a credit score in the range of 700 to 780 on a scale of 900 to get approved for a LAP.
- Outstanding Debt: Most lenders across the country follow a rule of thumb which dictates that at no point should the sum total of your monthly EMI payments exceed 45% of your net income, and thus if you want to get approved for a LAP, general advice to follow would be to keep your outstanding dues to a minimum.
- Current Market Value: Since in order to finance this loan, you are using your property as collateral, therefore lenders will take into account the current market value of your property to calculate your LTV and accordingly assess your application. To be prepared, you can conduct your own research on the average prices of properties in your area to estimate a ballpark figure and then work your way from there to get quickly approved.
Shared below are some of the noteworthy features of a LAP.
1. Competitive Rate of Interest
Although this tends to vary between lenders, since this is a secured financial instrument, the interest rates tend to be pretty competitive and generally in the range of 9% per annum to 15% per annum.
Loans against property generally arrive with long tenures and can range anywhere from 7 years to 15 years, depending on the exact terms and conditions of the loan agreement.
3. Processing Fees
Although this vertical tends to vary between lenders, it has been observed that most of them charge anywhere between 1% to 3% of the total loan amount as processing charges for the loan application. This cumulative charge includes the breakdown for stamp duties, valuation charges, collection fees, documentation charges, commitment charges, applicable taxes, and more.
4. Processing Time
If everything checks out, the application process for a loan against property typically gets approved within one business week; however, in case of discrepancies, it can take longer.
Securing a loan by pledging your property as a security deposit is not only a wise financial decision but also an advantageous one, mainly due to the fact that they arrive with competitive rates of interest and longer tenures.
Now that you know about LAPs go ahead and apply for one today. All the best.
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