You may have come across the term ‘Loan Against Property’ (LAP) in the housing finance market or real estate sector. Such a loan is exactly as the name implies – a loan borrowed from a bank or a Non-Banking Financial Company (NBFC) against the mortgage of a property. Financial institutions generally give a loan on the property as a certain percentage of the market value of the property, up to a maximum limit of 90%.
Some borrowers are often riddled with certain queries on such a type of a loan. It is imperative to resolve all your doubts, so as to be a well-informed borrower. Following are seven common frequently asked questions about finance against property.
- How is a LAP different from a home loan?
A home loan is extended to purchase a new home. LAP, on the other hand, may be used for any purpose and not just for purchasing a new property, which could be for residential or commercial purposes. The only similarity between the two types of loans is that the property acts as a collateral in both cases.
- Who is eligible to apply for a LAP?
Salaried individuals, self-employed professionals, sole proprietors, LLP, private limited companies, and partnership firms may apply for such a loan. These entities are required to meet the eligibility criteria of the lender.
- How much amount is given as mortgage?
Though various lenders have their own limit, around INR 5 lakh to INR 10 crore is given as mortgage on a general basis. As stated earlier, the lend amount is a percentage of the property’s market value.
- What kind of loan options are available?
Lenders provide loans for buying of commercial and residential properties. A loan against property is also given against residential plots, residential property, and commercial property to Small and Medium Enterprises (SMEs).
- What type of interest rate is best-suited for me?
There are two types of loan against property interest rates, namely fixed and floating. Under the former, the interest is fixed over the term of the loan, while in floating the regular installments may vary with change in interest rate.
- Is it necessary to have a good credit score while borrowing such a loan?
Yes, financial institutions check credit score in order to determine the financial position and the repayment capacity of the applicant. Higher the credit score, greater is the probability of gaining approval on such a loan.
- Is it necessary to insure the property?
Most lenders mandate that the property is insured for fire or any other perils. The insurance policy must provide coverage throughout the loan tenure.
With the advent of digitalization, the process to apply for a loan against property has become simpler. You may simply visit the website and fill up an application form. The financial institution then verifies the details and schedules an appointment to discuss your requirements. Your property will then be inspected, and upon successful processing of your application, the amount will be credited to your bank account.
It is imperative for individuals and businesses to meet the loan against property eligibility criteria to avail of such a finance option. The applicant must be at least 23 years of age, and a maximum of 70 years by the time of maturity. Salaried individuals need to display five years or work experience, while self-employed individuals must have at least two years in their respective industry with a positive net worth. It is also necessary to have a good credit score coupled with a clean record of past loans and statutory payments. To support your application, basic loan against property documents required include photo identity proof, residential proof, income proof, and property documents. You may submit these documents and seek finance using your property as collateral.