Loan Against Property (LAP) is also referred to as mortgage loan. As its name suggests it is availed by mortgaging property (residential or commercial). If you require funds for personal or business purpose, then you can avail either a secured loan or unsecured loan. But availing a secured loan is better as it comes with a lower rate of interest in comparison to other unsecured loans. There are different types of secured loans and loan against property is one of them. The best thing about availing a loan against property is that you can avail it for a period ranging up to 15 years with an affordable repayment option. If you are planning to apply for loan against property, the following are the important things you need to know about it:
Different banks have laid down different eligibility criteria. You can avail a loan against property only if you fulfill the eligibility criteria. Some common eligibility criteria include the following:
- The minimum age required to apply for a loan against property is 21 years, if you are below 21 years, you cannot apply for a loan. The maximum age is 65 years, which means you should close your loan before 65 years.
- Both salaried and self-employed individuals can apply for a loan against property. If you are salaried then a minimum net take-home income of Rs. 40,000 per month is required and if you are self-employed then an annual income of Rs. 3 lakhs is required.
- For salaried applicants, a minimum work experience of 3 years is required and for self-employed, business existence of minimum 5 years and ITR of 3 years is required.
The loan amount you are eligible for depends upon the Loan To Value Ratio (LTV). Bank apply an LTV to determine your loan amount eligibility. LTV differs by property type:
- For industrial property, banks give loan up to a property value of 50 – 55 percent.
- For residential property, the loan is granted up to a property value of 60 – 70 percent.
- For commercial property, bank applies an LTV of 60 – 70 percent.
Let’s assume bank gives you an LTV of 60%, it implies you can get a maximum of 60% of the property value as loan amount.
Interest Rate and Other Charges
Different lenders charge a different interest rate. The interest rate may vary for the different borrowers even if the lender is the same. The interest rate applicable depends upon your eligibility and loan amount. You can check and compare interest rate across different lenders online through different online aggregators. When you apply for a loan, lenders charge a processing fee and when you decide to prepay your loan before your loan tenure, you have to pay penalty charges. You should always check and compare different charges applicable before sealing the deal to avoid any confusion at a later stage.
The credit score helps lenders in assessing your repayment capacity. Credit score depends upon your past loan track. If you have paid all your EMIs on time then your credit score improves. In case, you default on your loan payment or you have delayed payment of an EMI then it has a negative effect on your credit score. Generally, a credit score of 650 and above is considered good for applying for a loan against property. If your credit score is below 650, then improve it before applying for a loan. Otherwise, it might lead to rejection of your loan application.
- KYC Documents
Identity Proof, Age Proof and Residence Proof.
- Income Documents
For Salaried: Latest 6 months payslip, ITR of last 2 years, 2 years Form 16, last 6 months bank statement showing salary credit.
For Self-employed: ITR of last 3 years, VAT/ service tax registration, business address proof, financial statements certified by CA, a copy of partnership deed and proof of business existence and business profile.
If you are planning to apply for a loan against property or mortgage loan, don’t be in a hurry. First, understand the above-mentioned points and then apply for a loan. You can apply for a loan offline by visiting the bank or through online aggregators.