What is a Loan Against Property?
A Loan Against Property ( Residential/Commercial/Industrial/Institutional & HUF ( Plot, Flat, Floor, Factory, Hospitals/Hotels/Schools ) is strictly what its name suggests – it’s a loan wherever the bank or NBFC (Non-Banking financial Company) lends you money and holds your property as security till the loan is repaid. Once you repay the loan fully, you come back to your property. just in case you fail to repay the loan, the investor will attach the property and dispose of it to recover the unpaid dues.
A Loan Against Property could be a standard kind of loan to require as it is one in all the cheaper retail loans available. it’s like a personal loan therein you’ll be able to use the loan amount for any purpose – like debt consolidation, business expansion, education expenses, family or medical emergency. However, compared to a personal loan, it offers a lower rate of interest, and offers a bigger loan amount over a extended reimbursement period. The key distinction is that a Loan Against Property could be a secured loan – the loan is secured by collateral – not like a personal loan, that doesn’t involve any security. This makes a Loan Against Property less expensive than a personal loan.
When Should I Consider Taking a Loan against Property?
A mortgage in opposition to belongings can be availed for a ramification of purposes ranging from home preservation to buy of machinery as well as to fulfill the shortfall of working capital. it is a safe proposition for the banks due to the fact they’ve collateral of the assets as assist for the finance they provide.
salaried humans opt for mortgage loans to cater to fees like the educational needs of their children, clinical prices, home protection, and so forth. enterprise companies choose the mortgage in opposition to belongings as collateral toward enterprise loans and for buying operating capital necessities.
a loan towards property is easy you acquire due to the fact it is secured in nature. banks generally hold a margin at the same time as sanctioning a loan in opposition to assets. this margin typically stages from 50-90% of the fee of the assets (additionally referred to as ltv or loan-to-price). this facility is likewise popular due to the fact the borrower can make use of the assets regardless of mortgaging it in favour of the bank.
the distinction among a loan against assets and a personal mortgage is which can take a private loan with out providing collateral. but, a loan against belongings calls for you to loan your own home to the lender.
any other great distinction is the fee of hobby on a loan in opposition to property is less than the rate of hobby on a personal loan. it is in most cases because of the security available to the bank. banks have the option of promoting the safety and improving their dues in case of default on the a part of the borrower.
there are various forms of mortgage towards assets. while it may be puzzling for a primary-time borrower, Uplaxya consultants pvt. ltd. can help you thru the entire system. explore the opportunities with Uplaxya consultants pvt. ltd. and seal the deal!
Every customer has to satisfy the Know Your Customer (KYC) norms stipulated by RBI. You have to provide the documents relating to your KYC, employment, business, and income.
- PAN Card
- Aadhar Card
- Voter ID
- Driving Licence
- Registered Rent agreement
- Aadhar Card
- Driving License
- Lease agreement
- Latest Gas or electricity bill
Financial Documents – Employment or Business Proof
- Salary slips for the last 6 months in case you are a salaried employee (In addition, you can provide IT returns for the past 3 years along with Form 16)
- IT returns for the past 3 years in case you are self-employed (Some banks accept 2 years IT returns as well)
- Statement of A/c for the past 1 year where your salary is credited (in case of salaried people)
- Profit and Loss statement and Balance sheet for the last 2 years in case of self-employed persons
- Sales tax, GST registration certificates, if applicable
- Partnership deed in case of partnership firms (if the applicant is one of the partners)
- Certificate of Incorporation in case of limited companies(if the applicant is one of the directors)
- Loan application form duly filled in
- Signature Proof
- Copies of all property documents that can establish the chain of ownership for the past 30 years
- Encumbrance certificate for 30 years
- Property tax paid receipt in case you reside in the property being mortgaged (usually when you apply for Home Loan Balance Transfer)
There is nothing like a free lunch in this world. Therefore, you should be ready to pay the processing fees for your housing loan. Is this the only charge you will incur? It depends from bank to bank. Some banks charge less processing fees, but may make up for that somewhere else. On the other hand, some banks and financial institutions consolidate their charges and include them in the processing fees. Let us look at some common charges you will most likely incur when you apply for a Loan Against Property.
- Upfront fee for processing –Many banks charge an upfront fee for processing your application. This is usually in the range of 3000 to 5000. This is a non-refundable fee, even in case the bank rejects your loan application. In case they sanction your loan, they adjust this fee in their regular processing fees.
- Processing fee –This amount ranges from 0.25% to a maximum of 2% depending on your employment status. Salaried employees incur a smaller fee whereas self-employed professionals and business persons have to pay more. Some banks do have a uniform rate. Note that you have to pay GST @ 18% on this processing fee.
- Valuation charges –Many banks charge for the valuation of the property. They have independent evaluators on their panel. These banks have a fixed structure of payment. Some banks insist that the customer pays to the bank whereas some of them include this amount in their processing fee structure.
- Legal scrutiny charges –Legal scrutiny of the property is mandatory. The financing bank has to ensure that you get a clear title to the property so that the mortgage holds well in law. Therefore, they have a panel of legal experts who carry out the search for a period of 30 years. You need to supply the property documents to these advocates to allow them to do the needful. Some banks ask the customer to pay the advocates separately whereas many banks include these charges in their processing fees.
- Mortgage registration charges –The prime security for the Loan Against Property is an equitable Most of the states in India require you to register the equitable mortgage in the bank’s favour. Under such circumstances, you incur stamp duty and registration charges. The equitable mortgage does not attract stamp duty in some states like Rajasthan. However, in states like Tamil Nadu, there is a stamp duty of 1% of the loan amount subject to a maximum of 25,000. In addition, you have to pay 5,100 as registration charges. Be aware of these additional expenses when you avail Loan Against Property.
- Pre-EMI charges –Some banks have the system of charging pre-EMI charges. Ascertain these charges beforehand.
- Insurance –Taking out insurance for the property is mandatory. At the same time, many banks and financing companies bunch a lot of their products like loan insurance, Mediclaim family floater policies, accident insurance, and critical illness cover, etc along with the loan. They provide the financing for the premium as well. Of course, you have to repay the same in your EMI. In a way, it is good to have these insurance policies because life is uncertain. In case something happens to the breadwinner and the principal borrower, the insurance can take care of the liability. However, other than the property insurance, all the other policies are optional. You can refuse to take them.
1. On completion of this process, you will be able to choose the offer that suits your requirements. You should keep your documents and the application forms ready. Uplaxya Consultants Pvt. Ltd. has a special team to assist you in this regard at no extra cost.
2. The lender has the responsibility of verifying the KYC and income proof documents. The lender would like to inspect the property and have a discussion with the borrower to obtain first-hand information about the borrower’s employment, business, income, and investments.
3. Banks have advocates on their panel to carry out a legal search for the last 30 years to ensure the property is free from any encumbrances and that the borrower has the clear title to it. It is a pre-requisite for the equitable mortgage to be valid and binding on the borrower.
4. The evaluation of the property is the next step following which the banks appraise the loan applicationfor the eligibility amount.
5. On the approval of the loan, the bank sends you the sanction letter that you have to go through and agree to the terms and conditions. Uplaxya Consultants Pvt. Ltd. helps you in this regard.
6. Finally, you have to execute the equitable mortgage and register it (if registration is compulsory – It is not so in some states).
7. We help you with the disbursement process as well.
1. Business Expansion Loans – Business entities can avail this facility for acquiring new machinery, purchase of plant, meeting working capital requirements, and invest in new technology or business. The lending banks require collateral in the form of property, residential, commercial, or industrial. Depending on the nature of the property available as collateral, the lending banks calculate the loan eligibility. For commercial properties, the LTV is around 55- 65%. In the case of industrial properties, the LTV reduces to 40-55% whereas the LTV in the case of residential property is in the range of 65-70%.
2. Working Capital Overdraft Facility – Banks sanction overdraft facilities against the property for meeting the day-to-day working capital requirements. Under such circumstances, the property is accepted as collateral. Lending banks estimate the amount of finance required based on the following figures:
- Property value and nature of the property
- Actual working capital requirement calculated as per the internal policies of the bank, usually the Projected Annual Turnover method.
3. Personal Expenses – Individuals can also avail Loan against the Property for personal expenses such as medical expenses, educational expenses, marriages, travel, as well as for purchasing consumer durables.
4. Home Renovation – Usually, people do not avail this loan for renovating homes as there are separate schemes available at comparatively lower rates of interest. However, there can be circumstances when the borrower might have to resort to avail a Loan against Property for home renovation.
5. Lease Rental Discounting – Some banks offer loans against the future rent receivables, especially in metropolitan and urban areas. One should note that the property that fetches the rent should also be mortgaged in favour of the bank. Banks usually finance in the range of 75% to 90% of the future lease/rent receivables. The tenure of such loans is shorter and should end before the expiry of the lease or the rental
Frequently asked questions (FAQ)
- What is Loan Against Property (LAP)?
- What type of properties can be offered as security for a Loan Against Property?
- How much loan can I avail against a property
- How is my eligibility determined for a Loan Against Property?
- Do I need a co-applicant for a Loan Against Property?
- What do I need to know about the Loans Against Property application process?
- What does one need to know about the fine print for Loans Against Property?
- What are Commercial Property Loans?
- What is Lease Rental Discounting (LRD)?
Got that business idea you need funding for? Do you need to invest in your business expansion? Do you just need relatively cheap funds for any purpose? If you have a loan-free property then probably a Loan Against Property is the answer for you. Popularly known as LAP, these loans are a convenient means to access funds at interest rates lower than personal loans or other forms of unsecured loans. To avail such loans, you offer an existing property as a security or collateral against which the lender gives you a loan. The current market value of the property determines how much loan you can avail against the property. Such loans allow the owners of properties to leverage the value of their existing properties to raise funds for a variety of reasons. The lender will also check for repayment ability of the loan being availed.
Residential property – plot or built up Commercial property – like office, shop, hotel, hospital, education institution etc. Industrial property – plot or built up Warehouse
Most institutions lend between 60%-75% of the value of the property as a Loan Against Property, provided the borrower can demonstrate the ability to pay the installment for such a loan. Few institutions even go up to 90%, for select borrowers / properties.
Your eligibility is determined after looking at the following: The current market value of your property and its current status Your current Income The nature and continuity of your employment Your current obligations i.e. the installments (EMIs) you are currently paying, your credit card balance, other credit limits availed Your credit history The end-use/purpose of availing such loans is also discussed with the lender and may have a bearing on the loan sanction
In order to give the lender an accurate picture of your loan servicing capability as a family, you could choose to have one of your family members as a co-applicant to your loan. Other members of one’s immediate family viz. spouses, parents, children& siblings may also become co-applicants to a Loan Against Property. Where income from a partnership or company is considered, the partners / directors can also become co-applicants, if the policy of the lender allows. In case of multiple property owners, all co-owners necessarily need to come on the loan as co-applicants.
Identify the property you intend to offer as security Determine your Loan Eligibility – This differs from lender to lender and depends on various factors like your age, income, profile, past credit performance etc. Just contact UPLAXYA CONSULTANTS Pvt. Ltd. and our Mortgage Loan Specialist will help you check your eligibility across lenders. We will also help you get the best deal. Apply for the Loan with the lender of your choice by filling the application form of the lender and providing all requisite documents. Our team will meet you at your convenience and help you in choosing the lender best suited for your requirements, completing all documentation requirements and getting your application logged in with the lender. All this comes at NO COST to you as our partner banks pay us for our efforts in this regard. Verification/Credit Appraisal Process – The lender will verify the information and documentation provided along with checking your credit history. The lender can also ask for additional documents. Legal Document Checking – The lender will do a title search of the property to ensure that the current ownership is valid.This is done either through an in-house legal department or an external legal firm. Property Valuation – The lender also gets an in-house or independent valuation for the property to determine the loan amount. For large loans, some lenders get 2 valuations done for the same property and could determine the loan amount basis the lower valuation. The valuer will also check if the building meets the approved building norms. The upkeep of the property is an important factor considered by the valuer and lender. Similarly, the future expected life of the building is required to exceed the tenure of the loan sanctioned. Personal Discussion – The lender will normally meet or speak to the borrower during the loan appraisal process. Some of the aspects that come up during such discussions are : Details of the property Income details including latest year financial trend Business / job aspects Other investments, savings, repayment capability End-use/Purpose of taking the loan Loan Offer letter – Post verification and credit appraisal process, the lender sends an offer letter with details like loan amount, tenure, rate of interest and other terms and conditions. Accept the terms and conditions of the Sanction Letter before proceeding to the next step. Sign the Loan Agreement and provide repayment instructions. Submit the entire chain of original property papers to the bank for mortgage. Disbursal of Loan Our Mortgage specialist will assist you all the way. No need to worry, as we are just a phone call away at all times. We will be happy to hear from you even after the loan has been disbursed, if you would like any help or clarification regarding your loan.
Availing a Loan Against Property is an important decision, given that this is a long term commitment and you are offering a valuable property as collateral. So take a moment to consider all possible options and scenarios before choosing your loan and your loan provider. Use the following mantras and hopefully you will not make any regrettable decisions! Cheapest isn’t always the best. Do not just go by who is offering the lowest interest rates. The cheapest may not be the best bet for you. Compare. Check your loan eligibility across multiple institutions and see who is offering you the maximum funds, lowest rates, better pre-payment options, longer tenure, minimum documentation, better product structure etc. To fix or to float? Choose the type of interest rate you are going for with caution. Whether to go with a fixed rate or floating rate deal is a decision you need to base on the current market dynamics around interest rates as well as what you expect to happen over the next few years. Our Mortgage Loan specialists will be happy to advice you in this regard. Assess all costs. The application costs such as application fee, legal fee, title search report charges, valuation cost, processing fee, loan agreement stamping charges etc. vary by lender. These are significant expenses and add to the overall cost of the loan. So do not just go by just interest rates. There may be some such expenses which you need to be aware of. We will be happy to guide you all the way. Know your exit options clearly. Learn about the pre-payment process. On Loans Against Property, the regulators have made partial and full pre-payments free of cost for individual borrowers. This is a great help to you, as you can cut your interest cost by making additional repayment as and when you have surplus funds available. However for other borrowers like partnerships and companies, a pre-payment change of 2%-5% is normally applicable. There could also be restrictions laid down on when and how much pre-payment can be done in a year. In the event you find a better deal that you want to switch to or you simply want to pay off your loan early, this penalty can make the decision an expensive one. Service before sales. Evaluate the service performance of the lender you are going with. Cheap loans do not always mean good service. Safety first. Especially in products like loans against property where a security is given to the lender, do ask sufficient questions about the nature and process of storing or retrieving your security documents. Make sure you obtain and keep a copy of the list of documents held by the bank.
a. Commercial Property loans are meant to purchase commercial properties much like Home loans are meant to purchase residential properties.Whether it is buying space for your first office or for subsequent branches or simply to invest in commercial real estate for generating rental income, Commercial Property loans are the answer. Like Home loans and other property based loans the consumer borrows money from a Bank, NBFC or a Housing Finance Company, to purchase a commercial property and offers the same property to the lender as a security. b. Commercial Property Loans may be availed for: Purchasing a property within a commercial development which is currently under-construction Purchasing a ready commercial property from its builder or its current owner Purchasing a commercial plot – in a private development or from a current owner or from a government development authority Financing the construction of commercial use building on a plot you already own Purchasing a commercial plot as well as financing the construction of your commercial property on it. c. Most institutions lend 50% – 70% of the value of the property as a Commercial loan, provided the borrower can demonstrate the ability to pay the installment for such a loan. d. You may apply for a commercial property loan after you have decided which property you are acquiring, However, even if you haven’t made a decision on the property, you can still apply and your financier would be able to let you know what loan amount you are eligible for under their Commercial Property loan program. e. Your Commercial Property loan eligibility is determined after looking at the following: Your current audited income and financial trend for the latest year The nature and continuity of your employment/business Your credit/loan repayment history Your current obligations i.e. the installments (EMIs) you are currently paying, your credit card balance, other credit limits availed The lending bank or institution will also consider which property you are buying. In the event it is a property under construction by a developer, the credibility of the developer and past performance on their projects will also determine how much the lender is willing to lend against such a property.
This product is tailored for people who have significant rental income.Under Lease rental discounting, the borrower avails a loan by assigning future rental income to the lender. The property from which the rent is accruing, is also offered as security for the loan. Most institutions discount upto 90% of the value of the remaining lease rent, provided the borrower can demonstrate the ability to pay the installment for such a loan.The tenure or duration of such loans is much shorter than other property based loans and usually linked to the amount of time remaining for the lease on the property to expire. Your eligibility is determined after looking at the following: Your current rental income Terms of the lease agreement i.e. when was the lease signed, what is the balance tenure of the lease, what are the key terms etc. Your current obligations i.e. the other Installments (EMIs) you are currently paying Your credit/loan repayment history Some institutions have special schemes where they extend the loan tenor beyond the lease period. Our Mortgage Loan Specialist will help you get the highest loan amount at the best possible interest rate. Contact us today!