Things to know before applying for a Loan Against Property

There are many types of loans available in the market to address your immediate financial needs, and loan against property is one of them. Just as the name suggests, loan against property is a secured loan where the lender lends money against collateral. These collaterals are immovable properties such as constructed residential or commercial buildings.

There are many financial institutions in India that provide loans against property. However, before one decides to go for such a loan against property, here are the following things that should be kept in mind.

Know the Eligibility for a Loan Against Property: The eligibility of an applicant for a loan against property depends on certain factors. Lenders do their own due diligence to know the applicant’s income. For both salaried and self-employed people alike, the lenders examine the capability of loan repayment. Generally, it is considered that a person can pay half of his earnings to repay loans.

Therefore, if someone seeks a loan amount that comes with a monthly instalment higher than half of his salary, the entire loan amount may not be approved. Here is a quick overview of the eligibility criteria:

• The set EMI amount should not be higher than 50% of the total monthly income (for salaried and business people)
• EMI for existing loans, along with its repayment track, impacts your loan eligibility
• The number of dependants on the applicant earning also plays a crucial role
• Applicant can declare/introduce his/ her spouse's income as an additional source of repayment and increase the chances of approval
• Lending institutions value a steady income over volatile earnings and may not consider one-time income while calculating the eligibility
• The applicant should have a good Credit Score

Proper Appraisal of the Collateral: When someone applies for a loan against property, the lending institution evaluates the collateral. You can get an approval of up to 100% of the property’s value as the loan amount. This is called the LTV or Loan-to-value Ratio, whih may differ from lender to lender.

For example, if the collateral has a value of 50 Lakhs, the lending institution may approve a maximum of 50 Lakhs as the loan amount i.e., an LTV of 60%. So, the applicant should determine the value of his collateral before applying for a loan against property.

Compare the Rate of Interest: A loan applicant should compare the rate of interest offered by the lender. It will not be wise to take a loan against property at a higher interest rate without comparison. Loan against property being a secured mode of finance is generally available as lower interest rates as compared to unsecured loans like a personal loan or business loans.

Be Aware of Other Charges: In addition to the rate of interest, there are various charges banks levy on the applicant. The applicant should always enquire about these charges and compare them in the market with other lending institutions.

• Processing Fees – Lenders charge a processing fee from the applicant. These fees vary from 0.5% – 2% on the loan amount and have additional GST.
• Charges for legal and technical due diligence – Lending institutions can charge a lump sum from the applicant to cover the expenses of investigation, valuation of the property, title verification of the property also called terms as legal verification report, and it ranges between 5,000 – 10,000.
• Pre-payment and Foreclosure charges – Generally, all lenders charge for pre-payments or foreclosure in case of LAP. Hence it is advisable to check these charges before taking the loan. All these charges vary from lender to lender, and one should wisely select the financial lender post analysing these changes.

Loan Amount and Tenure: Just like comparing the offered rate of interest, the applicant should compare the approved loan amount and the tenure of the repayment. Keeping an eye open for better deals is a trait of a wise applicant.

Are There Any Added Benefits and Services: Some lending institutions may offer added services to the loan applicant. Therefore, reading the documents carefully and enquiring pro-actively about any value-added services like insurance of customised guidance can be a clever move for the applicant.

Benefits of a Loan Against Property: A loan against property comes with a lower rate of interest and a higher repayment tenure. However, when compared to traditional home loans, loan against property has a higher rate of interest. Here is a list of benefits of loan against property:

• Competitive rate of interest
• Longer repayment tenure
• Relatively higher loan amount which depends on the value of the collateral
• The beneficiary still holds the ownership of the property and can reside in it, rent it, and operate business from the mortgaged property
• Better chances of approval
• End use of funds can be flexible.

In Conclusion: Loan against property is an efficient way to acquire funds for both salaried people and business owners. If an applicant takes the adequate measures discussed in this article, then all the risks associated with taking a LAP can be mitigated. For people looking for a reliable financial institution for loan against property, Poonawalla Housing Finance offers a great deal.

We have a hassle-free document verification system that fast-tracks all loan applications and makes it easy for you to avail this loan. Click here to read on the loan offer.