Loan against Property

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Loan against Property refers to the secured loan category like home loan where the borrower gives a guarantee by using his property as a security. The right of ownership of the property is still with the borrower, and if he/she is unable to repay the loan amount, he/she can sell the property to pay off the debts.

Typically these loans are used to start or expand business or to renovate your house. But it can also be used to repay existing high rate loans.

The maximum loan amount varies from bank to bank. It could range from Rs.2 lacs up to Rs.100 lacs. The exact amount depends on your property valuation, income and of course repayment capacity.

The rate of interest is usually 6.5%+ but depending on one's profile and the Bank's criteria, it may vary.

The maximum loan amount can come up to 50% of property value for commercial setups and up to 60% for residential properties.

The maximum loan tenure is 15 years.
 

You require security, collateral or guarantors for obtaining a Loan Against Property.

Most banks do not accept properties that are on lease or that are based on power of attorney. The maximum age limit of eligibility is 60 years.

You can choose either Fixed or Floating rate of interest. You also have an option of changing from Fixed to Floating interest rates and vice versa once every year.

A processing fee is usually 0.05% to 3% of the loan amount and is payable upfront. This fee however will be deducted from the disbursal amount payable to you. You should always ask for the 0% processing fee or negotiate the processing fees.

You pay your loan in EMI's through post-dated cheques or through ECS to debit your Bank account through ECS with the EMI amount.

You can also prepay the entire loan outstanding anytime after 180 days of availing the loan. Pre-payment charges will be levied accordingly. If you intend to do so, please ask for the pre-payment amount to be waived or a reduction in the penalty charges.

You can also increase or enhance your loan against property eligibility. For that you need to show income of at least three persons, most preferably a family member or a business partner.

Also know these pointers before availing a LAP.

Decide on the basis of what you really need. Also see if the cost fits into your estimated budget.

Compare the quotations given and interest rates from 3-4 banks, select the one which offers maximum benefit and serves your purpose.

Also determine the tenure of the loan. The EMI may come less for longer tenure, but the total interest outgo will be higher.

Know all about processing fees and time. Some banks may waive the processing fee for processing loan but they build this cost on their interest rates.

Consider pre-payment options. All banks charges 2% - 3% of the loan in case you decide to pre-pay the outstanding amount.

Default in payments results in penalties. It can also adversely affect your credit history and profile. So make sure to make your payments on time.

Make sure that all deals and offers agreed upon are supported by relevant papers. So make sure you always ask for a letter in a banks letter-head mentioning the likes of, exact rate of interests, processing fees, pre-payment charges along with interest-schedule.

Also before signing the documents, make sure you recheck all terms and conditions.

Do not at any circumstance give any false information. This may amount to fraud and could land you in trouble.

Do not sign any blank documents. Even if it takes you a few hours to fill-up the form, please do so. Do not leave anything for the executive to fill-up.

Finally, once you have received a loan do your best to pay it back as quickly as possible. Banks make their money off the interest they charge and the sooner you pay back a loan the less money you will have to pay in interest.

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LOAN AGAINST PROPERTY - PROCESS

  • There are several steps in a loan against property process. It is important that title deeds are in place.
  • A loan against property (LAP) gets you capital based on the value of your property. It is available for both salaried and self-employed persons and against commercial as well as residential property.  All this and, you don't have to sell your property to raise the capital. It's all yours to keep if you repay the loan taken.
  • Steps involved in the application process are:

 
•    Application
•    Processing
•    Documentation
•    Sanctioning of the loan
•    Valuation and legal check
•    Disbursement
 

  • Just as in case of every loan, the loan application begins the whole process. You will need to fill in a loan application with details, personal and professional, loan requirement, details of the property intended for mortgage etc. Make sure the details are filled in accurately.
  • Next comes the loan processing stage, the stage at which the loan process gains actual momentum. This could start with a personal discussion followed by the bank's field investigation.
  • Along with the application form and the credit documents, you may have to pay a processing fee to the bank, which could be 1-2 per cent of the intended loan.  
  • An upfront fee could be collected to maintain your loan account records, sending income tax certificates every year, maintaining post-dated cheques, etc.

 

  • When you go for a personal discussion, carry all the original documents pertaining to the information provided on the application form. Do not submit any forged documents or lie about the financial details requested.   

 

  • The bank's field investigation will follow; the bank might outsource this task to third-party verification agents.

 
Detailed list of documents required
 

  • Proof of income: Copies of last three years income tax returns (along with copies of Computation of Income/Annual accounts, if any), Form 16/Form 16A, last three months salary slips, copies of the last 6 months statements of all the active bank accounts that reflect your salary/business income details etc.
  • Age proof: Copy of the school leaving certificate/driver's licence/passport/ration card/PAN card/voter identity card etc.
  • Address proof: Utilities bills, such as phone and electricity bills, need to be provided to prove that you are actually staying at your current address.
  • Identification proof: Documents with your photograph.

 

  • Sometimes, one document, if it contains a photograph, the current residential address, and the correct age can be the proof for all three mentioned above.  

 

  • Employment details: If your company is not well-known, a short summary about the nature of the company, its business lines, its main customers, its competitors, number of offices, number of employees, turnover, profit, etc. may be needed. Usually, the company profile that is available on the standard website of the company is enough.

 

  • Property papers: The bank may require title deeds and other documents relevant to the property. This will be important as the loan can be taken only against free-hold property. Also, it can be only about 40-60 per cent of the cost of property. It is important for the bank to establish the value of the property and its legal status before the offer can be considered.     

 

  • Meanwhile, bank verifies your personal and employment details. The bank also does a valuation of the property.     
  • Loan sanction is the next process in the series. At this stage, the bank has checked your financial credentials based on criteria such as your income, age, qualifications, experience, employer, nature of business (if self employed), etc. They work out the maximum loan eligibility, and an indicative loan amount that the bank is willing to offer.

 

  • Offer letter/Sanction letter: The bank now sends you an offer letter with details relevant to the loan. If these terms and conditions are acceptable to you, you can sign an acceptance copy.

 

  • Valuation and legal check on property and papers is the next stage where the focus of the bank will shift to the property that you intend to mortgage. Make sure the property papers and the relevant NOCs are in place. The bank's lawyer will check the property papers for their legality. The bank may also send an expert to visit the property. This expert could be a bank employee or an associate with a realty firm.

 

  • Once the bank has ascertained all that it needs to be assured of you as a client, the property as a security, and your repayment capacity, it will disburse the loan. The bank does not enquire about the purpose for which you use the loan. Though, it stipulates that the loan should not be utilized in speculative activities.