One of life’s needs and a priceless possession is a home. One analyzes it for earning rental income or selling it at a higher price for profit when considering investment potential. However, if you need finance- and you don’t want to sell your home, you can still use it to quickly generate the required capital. You can obtain a sizable loan with a loan against properties that you can comfortably repay.
What Is an Asset-Based Loan?
In this kind of loan, the lender uses the borrower’s assets as security or collateral until the loan is fully repaid. The borrower is then handed the property documents back. Especially compared to personal loans, a secured loan against property provides a higher loan principal, a longer repayment term, and lower interest rates. The borrower can continue to use the pledged asset for the entire duration of the loan and the LAP loan may be sanctioned with either a floating or fixed rate of interest.
What to Think About When Getting a Loan Against Property
There are five things to think about before you apply for a mortgage loan that will clear up any confusion you may have about real estate loans:
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Types of loans secured by property
- Mortgage backed by residential property: It is simple to mortgage a home or land that is used for residential purposes. However, it must be in good condition and free of any existing loans. Land used for agriculture is excluded from this.
- Any property utilized for business purposes may be used as collateral for a loan, providing it has a clear title and no ongoing legal matters. Lender inspection is necessary before accepting a piece of property as security.
- Loan against Industrial Property: A property employed for commercial or industrial purposes may be used to get an LAP , but the entire area must be used for the purpose for which the application is being filed.
- Advantages of a Property Loan
- Lower interest rate: Because a loan against property is secured and low-risk, the interest rate is lower. Even so, the interest rate on a property loan changes based on the applicant’s qualifications and ability to repay the loan.
- Greater loan amount: If you apply for a property loan, you will be assured a loan amount of up to 80% of the market value of the property, which is a sizable figure. The loan principal will increase as the property’s market value increases.
- Longer tenor and low EMI: Because of the pledged collateral, lenders are taking on less risk and can provide longer repayment options, which leads in a cheaper monthly interest payment.
- Flexible use: LAP is responsible for a variety of purposes, like business growth, financing wedding costs, better education, foreign travel, medical treatment, crises, or any other need.
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Qualification Standards
Different lenders have different eligibility standards, and applicants must meet them in order to obtain an LAP. The basic requirements for eligibility are:
- You must be an Indian citizen between the ages of 25 and 70, or 28 and 58 if you are self-employed (for salaried).
- The applicant must be capable of making timely payments. He or she must have a consistent source of income and low debt repayments. People who are paid should have worked for at least three years.
- It’s crucial to have a solid credit history and score. This will facilitate quicker loan approval and better credit terms for you.
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Can a 100% loan be secured against property?
Borrowers are not permitted to borrow 100% of the value of their property. The loan amount ranges from 40% to 80% of the actual market value of the property. The maximum loan amount is set by the lender and is based on a variety of variables, including borrower’s income, job, and credit history.
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Requirements for Documentation
Each lender has a different set of LAP recordkeeping requirements. On the other hand, the usual list of documentation consists of:
- Submission of identification, address, income, and employment documentation is required.
- Salaried personnel are forced to give pay slips, IT returns, and three months’ worth of bank statements.
- Self-employed people have to provide five years’ minimum income tax returns, a balance sheet of their business, and a profit and loss statement as evidence of their revenue.
- Title deeds, tax receipts, ownership and registration papers, insurance papers, etc. are examples of property documents.
How to Apply for a Property-Based Loan
Visit the branch or website of your lender. Send in the properly filled-out application form along with any necessary documentation. As soon as the lender has completed the verification process, the loan amount will be issued.
Charges for Foreclosure on Loans Against Property
There are no additional fees or costs for prepayment or foreclosure if you have an LAP with a floating interest rate. Those who have fixed interest rates could be required to pay low fees, which vary based on the lender.
How Are Property Loans Distinct From Home Loans?
To buy or build a new home, borrowers obtain housing loans. No other use of the loan amount is allowed. A property loan, on the other hand, has no end-use restrictions and can be used to compensate for a range of costs.
To Sum Up
A loan against property has benefits over a home loan or other secured loan because of these factors. Nevertheless, use a property calculator to determine your capacity to repay before you apply for an LAP.
