A loan against property is the loan that you avail by keeping your property as collateral with the bank. Hence, loan against property is a secured loan. The loan is given as a certain percentage of the property’s market value, typically around 40-70%. The rate of interest for the loan varies from bank to bank and tenure could go up to 15 years.
Loan against property can be used for multiple purposes such as expanding your business, paying off for marriage, spending on higher education, medical emergencies or debt consolidation. The end use of the loan should be allowed by the banks or financial institutions. You must declare the end use of the loan in the application form
The eligibility criteria to get a loan against property varies from bank to bank. Some of the common factors that determine your eligibility are mentioned below:
Age: The minimum age to apply for a loan against property must be 21 years and repayments must be made before the age of 65 years.
Income: Banks demand a minimum income of Rs. 40,000 for salaried persons and self-employed individuals should have a net annual income of more than Rs. 3 lakhs.
FOIR: FOIR is fixed obligations to income ratio which includes your current EMIs, rent and proposed EMI. The minimum FOIR required by banks is 60%.
CIBIL score: A credit score of 650 and above is required to get a loan against property.
Employment history: For salaried employees, the minimum work experience required is 3 years. For self-employed, the business existence of minimum 5 years is required.
Property approval and documents: The builder and property against which you are taking the loan should be approved by the bank.
Here are the benefits of applying for a loan against property:
- The long tenure of the loan makes the EMI more reasonable.
- The rate of interest is lower as compared to unsecured loans such as a personal loan.
- No prepayment charges on floating rate mortgage loans.
- Since it is a secured loan, banks are more willing to provide this loan.
We have listed the types of properties that are being accepted as security to avail a mortgage loan:
- Commercial or residential property.
- Industrial properties.
- The property offered as security must be located within municipal limits.
- The property must have been constructed as per the approved map plan.
- No other individual or bank should have a claim on the property.
Documents required to apply for a loan against property:
- KYC documents: Aadhaar Card, PAN Card, Driving license, Passport, Voter ID, etc.
- Bank statements for past 6 months.
- Property documents such as sale deed, Maintenance bill, Share certificate, etc.
- Salary slips and form 16 in case of salaried employees.
- IT returns, Profit/loss balance sheet for the last 3 years of your business.
- Business Proof: Company registration license, Shop establishment act or Tax registration copy.
In conclusion, a loan against property is one of the best ways to raise funds. The only disadvantage of such a loan is that if you fail to repay the loan in full, the bank or financial institution can take possession of the mortgaged property. So, base your decision on your repaying capabilities.