You might have to take a loan from a bank at some point for a variety of reasons, and when that time comes you should consider taking advantage of loan against property (LAP) schemes, also known as mortgage loans. One of the biggest advantages of owning property is that it can be used as security for a loan under these LAP schemes.
Loan against property comes with many advantages such as flexibility in terms of repayment options, better interest rates, and relatively simple documentation requirements. These are a great option if you are seeking a loan of large amounts. You could possibly avail a loan amount equivalent to 75 or 80% of the market value of your property.
Although loan against property is one of the best options among secured loans, you cannot get a loan against property without income proof. You should do your research and compare several options from various banks before deciding on a LAP scheme. Some factors to consider are interest rates, additional fees and charges, and the terms and conditions associated with the loan.
Features like low interest rates, long tenure periods, and hassle-free documentation make this type of loan a great choice for those who are looking to renovate their property. There are also special schemes which you can avail if you fall into certain categories, e.g. women applicants can enjoy lower interest rates than men under certain types of bank loans.
Features of Loan Against Property
Some of the notable features of taking a loan against property are:
- Lower interest rates as compared to unsecured loans, especially if you have strong credit scores
- Longer tenure periods for repayment, sometimes up to 20 years
- Large sanctions possible
- Easier to procedure with fewer documentation requirements
Eligibility Criteria
The general eligibility criteria to apply for a loan against property are:
- You need to be above 21 years old and below 65 years old
- You must be salaried or self-employed with proof of income
- You must be a resident of India
A salaried person would be eligible to apply for a loan against property provided they are employed with a monthly income of at least ₹40,000. If you are self-employed and running your own business, you need to show profits to be eligible for a LAP scheme. The simple fact is it is not possible to get a loan against property without income proof, and you will not be able to apply for one if you don't meet the eligibility criteria mentioned above.
Sanction
If you fulfill all the other loan against property eligibility criteria such as having valid income proof and your credit score is good, you could qualify for a large sanction amount under loan against property. Depending on whether your property is empty or rented out, residential or commercial, etc, the bank can offer you a loan of up to 75% of the property's market value. This makes loan against property a good alternative if you are seeking a large loan.
Interest Rate
If you have decided to apply for a LAP scheme, you certainly might have wondered about the loan against property interest rate. Generally, a loan against property can provide you with lower interest rates than an unsecured loan. You can take out a loan against property for an interest rate lower than 10% while unsecured loans tend to have interest rates as high as 25%, or sometimes even higher.
Documentation Required
You will definitely need to submit basic identity documents as per the guidelines for KYC verification, both proof of identity as well as proof of residence. In addition, you will need to submit financial documents, depending on your employment status.
If you are a salaried professional you will have to provide the following financial documents:
- Salary slips for at least the previous 3 months
- Form 16
- In case employer in form 16 is different from current employer, proof of employment
- Bank account statements for the previous 6 months On the other hand if you are self-employed, these are the documents that you will have to furnish:
- Proof of continuity of the business with the relevant documents
- Financials of 3 years, audited by a registered accountant
- Bank account statements belonging to the business account for previous 1 year
- Tax returns for the present year
- Any documentation related to existing loans or EMIs
- Shareholders' pattern document as well as a list of all directors
- Proof of incorporation of business through MOA, AOA, or other relevant documents
If you are unemployed and not the owner of a profitable business, then it is possible that you might not be able to avail of a loan against property.