Loans against property are multi-purpose secured loans which are offered by lending institutions and banks while holding a property you currently own as collateral. The property owned by you is used as collateral and you can obtain funds for up to 60-80% of the market value of the property. While your property is mortgaged to the lending institution, you can still continue using it for any residential or commercial purposes. If you are considering taking out a loan against property, here are some of the questions you may have.
On one hand, a home loan is one that is secured by a banking or lending institution for the purpose of buying a residential property. On the other hand, a loan against property is a multi-purpose loan which is availed by leveraging real estate to obtain funds for anything varying from expanding your business to funding your child’s higher education.
Usually, one can avail a loan against property at a much lower rate of interest as compared to personal loans. The funds available when taking out a loan against property as compared to a personal loan are also significantly higher and you can also avail a much longer tenure. However, it must be noted that the interest rate you will be charged and the tenure of loan available to you will vary on a range of factors, including your salary, property valuation, amount of loan, amongst other factors. Additionally, lending institutions and banks also charge a lower processing fee on loans taken out against property as compared to personal loans.
While the specific loan against property eligibility & criteria will vary depending on your banking institution or lending agency, there is some common overall eligibility criteria. The loan can be availed by any salaried individual or self-employed professional. Co-applicants can be close relatives, partnership firms or even a private limited company. The primary applicant must be at least 21 years of age and an Indian resident. However, some institutions do grant loans to NRIs as well. Additionally, you must earn a certain minimum monthly income indicating repayment capacity to meet the EMI payments. Finally, you should also have a good credit score, which also impacts the loan against the property interest rate that will be charged.
A common myth is that a loan can only be accepted in lieu of residential property. However, lenders and banking institutions accept loans on a myriad of properties, including residential or commercial use properties. In fact, a plot of land which has not yet been constructed can also be considered as collateral to obtain a loan against property. Depending on the bank or lending institution one can usually obtain a loan for about 60-80% of the market value of your property, regardless of it being residential or commercial property.
The documents required for you to apply for a loan against property will vary from bank to bank and upon whether you are a salaried individual or are self-employed. In general, you will usually be required to generate identity or residence proof, salary slips or income tax returns (as proof of income) as well as a cheque covering the administrative or processing costs being charged by your bank. Additionally, you might also be required to provide bank statements, credit score reports, educational qualifications, balance sheets of your company, amongst other documents. Ensure you check the required documentation for loan against property carefully before submitting your application.