What is Loan Against Property – LAP & Its Checklist?

All you want to know about loan against property

A lot is going on in a person’s mind when he has to send his kids abroad for studies or maybe when he has to plan a wedding or needs funds to invest in his business. The first (and scary) thought is: “From where do I arrange all the money?” There are some creative ways to arrange these funds…like talking sweetly to your friends and relatives to convince them to lend you the money, but a better and self-sufficient way is to opt for a Loan Against (your) Property or Loan Against Property as it is popularly called.

So what exactly is a Loan Against Property and do you make one fall into your LAP? Read our detailed guide below that explains everything about a loan against property. A loan against property is exactly what its name implies. We disburse or provide loans against the mortgage of a property. It is obvious that if you want to take a loan against a property, then you have to be the owner of a property, preferably a self-occupied residential property. You may even get a loan against commercial property like a shop or factory but this is less likely as most banks, HFCs, and NBFCs prefer to provide LAP against residential properties only.

Loan Amount

So how much money can I raise against my property? Generally, lenders provide a loan of up to 60% of the property value as a loan. This percentage is called the loan to value or LTV. The maximum tenure offered is 10 years. The rate of interest will be higher than a home loan rate but lower than the interest rates on personal loans.

The tenure of 10 years that is offered for a LAP is higher than the tenure offered for personal loans which are likely to be a maximum of 5 years. This coupled with a lower rate of interest results in a lower EMI for the customer and hence makes a LAP more attractive than a personal loan. The funds can, of course, be used for short-term requirements like a marriage, college fees, hospital expenses, expansion of business, taking a vacation, etc. Some lenders offer
up to 15 years tenure which makes it even more attractive in terms of more affordable EMIs

The loan against property can be availed by both salaried and self-employed persons. The evaluation process is very quick and the documentation is generally very simple

Important factors to keep in mind when applying for a loan against property:

Eligibility Criteria

The eligibility criteria when applying for a loan against property are quite different as compared to that for unsecured loans (personal loans) where an individual’s income shall decide the eligible loan amount. While the eligibility criteria for a loan against property vary depending on the lender, certain factors are considered by all. These include the applicant’s income, his or her savings, and also their repayment track record. This repayment track record includes repayment of credit card amounts, previous loans, etc.

The market value of the property is also taken into consideration. Besides this, the applicant’s employment status, his or her age, and financial stability are also taken into consideration before sanctioning the loan amount. Usually, lenders prefer that their customers continue to be employed until the loan is paid off fully. This is why the maximum age-at-maturity of loan against property for a salary-earning individual is 60 years (this is the retirement age in India followed by most organizations). However, for businessmen and self-employed professionals, the age-at-maturity can be higher… say 65 years.

Documentation Process

Besides the application form, and other identity proofs one needs to submit ownership documents for the property as well. A property evaluation report is also required. One needs to make sure that all the information mentioned in the documents submitted is accurate and authentic. If you are a salaried person,
below are some of the vital documents that you need to submit:

• Application form with a photograph attached
• Valid photo identity
• Proof of current residence
• 3 latest salary slips
• Form 16
• Bank statements of the last six months
• A cheque for processing fee
• Proof of ownership of property

If you are a self-employed professional or businessman the documentation required may vary a little. Following are some of the vital documents required:

• Application form with a photograph attached
• Valid photo identity
• Proof of current residence address
• Evidence of business, Certificates of educational qualifications (for
  professionals)
• If you are a self-employed professional you need to submit the last 3 years
  IT returns (self and business), Last 3 years Balance Sheets and P&L
  statements
• If you are a businessman you need to submit a business profile, Last 3 years
  IT returns (self and business), Last 3 years Balance Sheets and P&L
  statements
• Bank statements of the last six months
• A cheque for processing fee
• Proof of ownership of property

Evaluation Process

Once the complete verification of all the documents submitted by an individual has been completed and it is concluded that he or she will meet the repayment criteria, the lender shall then process the loan application. Usually, a field visit of the property is also conducted to assess the value of property placed against the loan.

The costs to be incurred

Besides the interest rate which shall be applicable on the loan, the lender may also charge the applicant a processing fee & a mortgage stamp duty. The process of the loan disbursement

Once the loan against property is sanctioned after all the legal formalities, the loan is disbursed. You may receive your loan in a single payment or 2-3 installments, depending on the size of your loan.

The Repayment Process

Usually, the general repayment period for a loan against property is 10-15 years. In certain cases, there may also be certain prepayment charges. This depends upon the kind of interest rate chosen.

Process for a loan transfer

During the repayment period, if the customer finds another lender who is offering better loan terms, the person has the option of transferring the loan from an existing lender to the new one. There might be some additional charges like prepayment charges involved in this process. Calculating all the costs involved in the loan transfer is vital before it’s done. This is because, with all the prepayment charges and loan processing fees on the new loan, one may not have any real savings.

To conclude, a loan against property is surely the most preferred option to choose when one needs a large quantum of funds quickly. Of course one needs to ensure that the loan is paid back on time, failing which, the lender has the right to take possession of the mortgaged property.

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Also Read:

Loan Against Property EMI Calculator

Factors That Affect Loan Against Property Eligibility

Loan Against Property Without Income Proof & Income Tax Return

Benefits, Eligibility and Documents Required for Loan Against Property

Loan Against Property: How can you avail Tax benefits from LAP?

Personal Loan VS Loan Against Property: Which One is Better?