Loan against property is often the only option of meeting the financial needs for a significant chunk of society. It is also called as the mortgage loan, as here the borrower lends a piece of real estate property to the lender in the form of mortgage, owned by him/her.
Such loans are likely to be approved easily as your properties back them and usually are charged at a lower interest rate compared to the personal loan. However, the borrower can use the property during the loan tenure. They are generally used when a large amount is needed, as they fetch an amount of 60% of the market value of the property.
To apply for Loan Against Property, one needs to fulfil certain criteria which include:
- Credit Scoring: Good credit score is the first parameter for the approval of a loan. Any payment default impacts credit scoring and reduces the chance of loan approval.
- Job Security: This is evaluated to understand the loan repayment guarantee. As this involves a longer tenure so the borrower should be well-settled in the job to meet this criterion and get the loan approved quickly.
- Property Age: The property age impacts the loan amount to be approved. An older property is less likely to get a higher amount approved in comparison to a new property. A proper renovated old property is similar to a newly built property and thus serves you a good amount in the form of a loan.
- Borrower’s age and income: The age and income of a borrower impact the repayment of the loan. Thus, it affects both the amount and the tenure of the loan. Both age and financial stability matters for the loan. A young professional is likely to get a loan easily compared to an older person nearing to the retirement age.
- Loan Period: The loan tenure impacts the EMIs. The higher the loan period, the lower the EMIs. Not only the borrower but the lender also appreciates long tenures as they can earn more amount of interest, but again it depends upon the age of the borrower as well.
- The rate of Interest and EMIs: There are two types of interest rates, fixed, where the rate remains the same throughout the loan tenure, and the other one is floating, where the rate charged can be flexible depending upon the country’s economy.
- Complete property documents: Incomplete documents can also hamper loan approval. Proper documents include legal documents, title deed, building blueprints and plans, and even various other approvals from multiple authorities.
- Mortgage Insurance: Though this is not that important, still this document helps in lubricating the faster approval of loan against property.
- Income Tax Returns Documentation: Any document is incomplete without the Income Tax Return document of at least three years. Failing to submit this document can lead to the rejection of the loan application, no matter if you have met all the criteria.
Additional Reading:-Loans Against Property – Key Questions/Answers
Loan Against Property is a good thing but defaulting its payment leads to losing the property. It is hence better to take a calculative decision.