Everything You Need to Know About a Loan Against Property

Loan against property is a highly sought-after retail credit solution in India, given its flexible end-usage, high loan amount, and other advantages. The following data reinstates the increasing demand of such advances among eligible borrowers.

  • According to the TransUnion CIBIL’s Industry Insights Report of Q4 2020, inquiry volumes for property loans saw a 5.7% year-on-year rise in November 2020 for private financial institutions
  • The same report shows that LAP loan approval rates by HFCs and public sector lenders reduced to 21.1% in August 2020

The second statement reflects how financial institutions have been rejecting applications in order to avoid any risk of defaulting, even during the pandemic. Individuals seeking such loans need to have a detailed knowledge of current borrowing trends and what it entails to ensure successful application.

What type of property can be mortgaged for a LAP?

Unlike other mortgage loans, LAP loans can be availed against various types of properties. Here is a list –

  • Residential properties, like independent homes, flats, apartments, etc. These can be self-occupied or ‘let out properties.’
  • Commercial properties, including malls, complexes, office buildings, shops, etc.
  • A piece of plot or land

Whichever be the property type, applicants must possess its legal ownership.

What is the maximum loan amount available?

Several factors affect the borrowable loan against property amount. The foremost is property value, combined with the loan-to-value ratio offered by financial institutions. It can range anywhere between 50% and 90% of the property value. It is always advisable to compare multiple loan providers before choosing one that offers a suitable LTV.

For instance, your property value is Rs.2 crore, and you choose a lender offering up to 80% LTV. The maximum loan amount you can avail here is Rs.1.6 crore. Conversely, if you choose a loan provider offering 60% LTV for the same property, you can get funds up to Rs.1.2 crore. Note that your property’s market value is decided by the lending institution after evaluating several factors such as location, age, and construction status.

Now, the amount you can actually avail within this maximum limit depends on your loan against property eligibility.

How does eligibility affect the loan against property amount?

Following is a list of eligibility parameters and their effect on borrowable LAP loan amount.

  1. Employment

Renowned financers offer up to Rs.3.5 crore to self-employed applicants. Salaried employees can avail up to Rs.1 crore in the form of loan against property.

  1. Annual income

Several lenders specify a minimum annual salary/business turnover to qualify for a property loan. Higher your annual income, greater will be the loan amount you are eligible for. However, borrowing more than necessary may disturb the financial stability of applicants. As such, they can use a loan against property EMI calculator and decide on the required loan amount as per their repayment capacity.

  1. Age

Must be 28-58 years if salaried and 25-70 years if self-employed. Usually, younger borrowers are eligible to avail a higher loan amount, whereas those closer to their age of retirement might not qualify for a high quantum.

  1. CIBIL score

Most lenders demand a healthy credit score while sanctioning loans. A greater CIBIL score indicates better credibility and, hence, makes the individuals eligible for a higher loan amount.

Besides meeting these eligibility criteria, borrowers need to provide certain mandatory documents to qualify.

What are the documents necessary for a loan against property?

Following is a list of the loan against property documents required during application.

  • ID proof
  • Address proof
  • Income proof like salary slips, or P/L statements, and audited balance sheet
  • Other financial documents like bank statements, ITR, etc.
  • Proof of property ownership and related documents

It might be difficult to get a loan against property without income proof. However, borrowers can add a co-applicant with regular income, display exceptionally good financial records, and try convincing a known lender for the same.

Besides following the above requirement of a LAP loan, make sure to check the optimum tenor, repayment facilities, and additional benefits like pre-approved loan offers.

These offers are provided by leading HFCs and make the application process hassle-free. These offers are available on financial products like loan against property, home loan, etc. You can check your pre-approved offer by providing your name and contact number.

Also, compare fixed and floating interest rates and compute total interest payment using a loan against property interest rate calculator. Do not forget to inquire about additional charges for processing, documentation, etc.

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