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How To Apply For Loan Against Property? Research Team | Posted On Monday, July 30,2018, 04:11 PM

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How To Apply For Loan Against Property?



A loan against property is a secured loan where a residential/commercial property is pledged as collateral. It is a long term loan. Loan against property is very popular among self-employed people. Loan against property is affordable compared to personal loans as the interest charged is comparatively low.

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How To Apply For Loan Against Property?

The rate of interest on loan against property ranges from 9-14% a year. Though loan tenure for loan against property ranges from 1-9 years, it can be extended up to 15 years. The lender checks your credit score before sanctioning the loan. To avail a loan against property, you should have a clear and marketable title to the property.

Banks provide loans ranging from 50-65% of property value. NBFCs (Non-banking Financial Companies) offer loans up to 75% of property value. A loan against property has a processing fee ranging from 0.5- 1.5% of the loan amount sanctioned.

Why Apply for a Loan Against Property?

LAP helps meet long-term and short-term financial requirements like children’s education, business, medical emergencies, and so on.

Eligibility Criteria to Apply for Loan Against Property:

  • All co-owners of the property must be co-applicants.
  • Salaried persons should be between 22 and 65 years.
  • Self-employed persons should be between 25 and 65 years.

Properties Not Accepted as Collateral for Loan Against Property:

  • A plot of land
  • Property of a co-operative society
  • Industrial sheds
  • Warehouse or cold storage
  • Agricultural building or land
  • Property under construction

Rules for Loan Against Property:

  • The property should be insured
  • The property should satisfy the minimum area criteria required by banks.
  • The property should satisfy the minimum market value, depending upon where it is located be it non-metro or metro-cities.

How Much Loan Can Be Availed in LAP?

Lenders ascertain eligibility to avail a loan by taking into consideration a percentage of property’s market value and the capacity to repay. Usually, non-banking financial companies (NBFCs) and banks offer a loan amount ranging from 50- 65% of the property value.

Tenor of a Loan Against Property:

The tenor of a loan against Property ranges from 1 to 9 years. However, it can be extended up to a period of 15 years.

Rate of interest for a loan against property:

The rate of interest for a loan against property is lower than a personal loan. Loan against property has a rate of interest ranging from 9-14% a year.

Charges and Penalties in a Loan Against Property:

The fees, charges and penalties payable on a loan against property are as follows:

  • Processing fee: Ranges from 1-2% of the loan availed. This amount is deducted from the sanctioned loan amount.
  • Statutory charges
  • Stamp charges
  • Penalty in case of delayed payment of the EMIs (Equated Monthly Installments), a penalty interest of 2-3% a month of the overdue installment amount is payable.

See Also: How To Get A Business Loan With Bad Credit?

Documents Required for Loan Against Property:

To process your application for a loan against property, some documents are required. Some of the documents differ for self-employed and salaried persons. Take a note:

1. Salaried Persons:

  • Photo identity proof: Passport, Pan Card, Voters ID
  • Residence proof: Passport, Ration Card, Utility Bill
  • Residence ownership proof: Property Documents, Electricity Bill
  • Income proof: Last 3 months Salary Slips, Form 16
  • 6 months bank statement of the account where salary gets credited
  • Documents of the property to be pledged: Copy of Sales Deed
  • Latest 3 months Salary Slips

2. Self-employed Persons:

  • Photo identity proof: Passport, Pan Card, Voters ID
  • Residence address proof: Passport, Ration Card, Utility Bill
  • Residence ownership proof: Property Documents, Electricity Bill
  • Copy of the documents of the property to be pledged
  • 2 years ITR or 2 years computation of income by a Chartered Accountant.

How To Select a Loan Against Property?

  • Compare interest rates, processing fees and other terms and conditions of all banks online.
  • Check your eligibility amount. The eligible loan amount is calculated based on your age, net income, existing financial obligations, property type and LTV ratio.
  • Calculate rough EMIs. Consider your income and existing obligations like rent, EMIs on other loans if any. EMI is calculated based on loan amount, interest rate and tenure.
  • Check property status and collect legal documents. The property against which loan is to be availed must have a clear title. It shouldn’t be disputed.
  • Collect documents like registered sale deed, lease deed, Tax paid on house receipt and so on.
  • Decide between fixed and floating interest rates. Fixed rates are slightly higher than floating rates. A majority of loans in India have floating interest rates.
  • Make a note of various charges, penalties and fees vis-a-vis loan against property. Some of them are prepayment charges, processing fees, insurance premium and so on.

How to Apply for a Loan Against Property?

  • Fill out an online loan application form or visit the bank branch.
  • You will be asked to fill out some personal details like occupation, income and so on in the application form.
  • The lender will calculate your loan eligibility based on the information given.
  • You will be given loan options like interest rates, processing charges, required documents and so in. If you don’t meet eligibility criteria, the bank will ask you to furnish additional documents or add a co-applicant.
  • The lender arranges for a meeting to carry out the KYC process. They will also collect photocopies of income and property documents.
  • Bank collects their fees.
  • Banks will undertake legal and technical verification.
  • Property verification will be conducted.
  • If the bank is satisfied, it will approve your loan. It will also issue a sanction letter and initiate the disbursement process.

It is good to avail a loan against property, instead of a personal loan. Assess your ability to repay the loan before knocking on the bank’s doors. Do not get trapped in debt. Avail loans only when absolutely necessary!

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