Countless loan products are on the market to help you with your financial needs. You will find products under both secured and unsecured loan categories. Not only that, but lenders offer various customised products depending on your needs.For example, there is a home loan product to help you with homeownership. Similarly, to help you meet your business expenses, there is a business loan. But is there any versatile product on the market that can be used to fund personal or business purposes together? Is there any product that provides ample funding for longer tenures? The answer is a loan against property.
What is a Loan Against Property?
A loan against property is a subcategory of a mortgage loan. This loan is available against real estate property, such as a residential house or apartment, commercial premises, or a plot of land within the municipal zone. The lender offers this loan for a maximum amount of Rs 15 crores or up to 85% of the mortgaged asset’s current market value. However, the final sanctioned amount and interest rate depend on your income, age, credit behaviour, and employment status.
How Does Loan Against Property Work?
Suppose you are in immediate need of funds and decide to get a loan against your property. You own a commercial premises with a market value of Rs 50 lakh.
You searched for a lender and finalised Godrej Capital. Soon after you submit your application and supporting documents, the Godrej credit department will verify your personal and property details.
They will review your monthly income and check your credit report to identify any past default history or indisciplined credit behaviour. The legal team will evaluate the property to see if there are any court disputes or issues with the ownership title.
If everything is in order, they will next decide on the maximum amount you can receive as a disbursement and the rate of interest based on your risk profile.
The Godrej credit team will issue a soft copy of the loan offer letter and the terms and conditions. Go through it and revert with your acknowledgement and acceptance in the format the lender specifies.
The funds will be disbursed to you in the next 48 hours.
Tips to Improve Your Loan Against Property Eligibility
1. Add a Co-applicant
You can add your spouse, earning parents, or children as co-applicants on the loan application. However, before doing so, ensure they either have a stake in the property you wish to mortgage or are legal heirs. The benefit of adding a co-applicant is that when determining eligibility and the final amount, the lender considers your and the co-borrower’s income and credit profile.
2. Property Condition
Review your property’s condition. If you notice a damaged ceiling or weakened pillars, have them repaired first. Lenders are unwilling to approve funds for a property in poor condition. If you default after repaying your dues for ten years and neglect property maintenance, the lender will struggle to find a buyer to recover the debt at auction.
3. Secondary Income
If you have a permanent job and also run a business, such as a restaurant (after office hours), or are involved in freelancing, it is important to mention these details in your loan application.
Additionally, if you own a spare apartment or house that provides rental income, include this information to demonstrate to your lender that you can repay the loan.
Multiple income streams can make your application more attractive and increase your chances of getting approved for a low-interest-rate loan.
4. Longer Repayment Tenure
If you believe you barely meet the lender’s minimum income criteria, consider opting for a smaller loan or a longer tenure to avoid rejection.
When you extend the repayment tenure, the EMI becomes more affordable, but remember, it comes with the cost of higher interest payable at the loan’s conclusion.
5. Fix your Credit Score
This three-digit number representing your credit behaviour is the first thing your lender will evaluate. To improve your credit score, here is what you can do:
- Never submit multiple mortgage applications simultaneously. Doing so will result in several hard enquiries that will label you as a credit-hungry borrower and downgrade your credit score.
- If possible, make prepayments on a few of your loans, either partially or fully. Paying beforehand suggests you have great repayment potential and can easily handle any new debt.
- Change your spending habits through credit cards. Keep your utilisation limit below 30% unless it is absolutely necessary.
6. Maintain Your Debt to Income Ratio
This ratio shows how much of your monthly earnings are used for existing debt repayment. Lenders prefer this ratio to be lower than 50% to grant approval.
A higher ratio suggests that when combining your monthly debt obligations with fixed income towards necessities, you won’t have enough income left to manage new debt.
Documents Required for Loan Against Property Approval
In order to ensure immediate approval for a mortgage loan, the lender requires the following papers:
- Identity Proof
- PAN Card
- Passport
- Aadhaar Card
- Voter ID Card
- Driving License
- Address Proof (Any one)
- Utility Bills (Electricity, Water, Gas)
- Telephone Bill
- Passport
- Aadhaar Card
- Voter ID Card
- Ration Card
- Income Proof
- Latest Salary Slips (last 3-6 months)
- Bank Statements (last 6 months)
- Form 16 (last 2 years)
- Income Tax Returns (last 2-3 years)
- For self-employed individuals:
- Certified Financial Statements (last 3 years)
- Bank Statements (last 6 months)
- Income Tax Returns (last 2-3 years)
- Property Documents
- Title Deed
- Sale Deed
- Property Tax Receipts
- Encumbrance Certificate
- Approved Building Plan
- Other Documents
- Loan Application Form (duly filled and signed)
- Passport-size Photographs
- Proof of Age (Birth Certificate or Passport)
Conclusion
A loan against property is an ideal funding solution if you want to meet a significant financial commitment. Since you pledge your real estate asset with the lender for this loan, it is important to have a backup repayment plan. This ensures that you do not default on your borrowing in the event of financial turmoil and can avoid losing ownership of the property.
