Popularly known as LAP (Loan Against Property) in the banking sector, these loans are a convenient means to access funds at interest rates which are lower than personal loans or other forms of unsecured loans./p>
Loans against property may be availed on:
Residential properties Commercial Properties Industrial properties Purchase of Commercial Property Lease Rental Discounting (LRD)
Loan against property (LAP) can be used for any of the following purposes:
Personal needs Business needs Renovation of property Investments Asset acquisition Consolidation of debt Mortgage loan buyout Refinance on self financed property
The bank will carry out due diligence of the property, appraise its value, and offer up to 70% of appraised value as loan. Since this is a secured loan (property is being offered as collateral), one can get a higher amount than the one will get for an unsecured loan like a personal loan. These loans can also be availed against a plot and not just against a constructed property . At most times they are priced slightly higher than regular Home loans but are definitely cheaper than personal or other unsecured loans.
Bank or the NBFC funding the LAP will charge the administrative charges in terms of processing fee, which is usually 0.5-1.5% of the value of the loan. The tenure for such a loan is generally less than 10 years, but some financial institutes are willing to extend it to 15 years if the loan is large. The interest rate, which can be floating or fixed, varies from 12-16%, which makes them cheaper than personal loans. It's also a better option since the tenure for these loans is longer than those for personal loans, which offer a maximum term of five years. One can prepay the loan, but some banks charge foreclosure charges in the range of 2-4% of the outstanding loan amount.
In the process of availing LAP, a number of steps are involved
The bank or financial institute will offer the LAP based on the information provided by you to determine your financial eligibility. The financial eligibility is based on income, age, existing loans and their repayment track. Care2Earn technology platform and experienced team works hard to provide adequate information about eligibility and different LAP (Loan Against Property) products available.
Comparing LAP interest rates is the primary feature in the LAP selection, however other fees & charges like Application fees, processing fees, legal charges should not be neglected when comparing various loan offers. To check the interest rates & other charges incurred by various banks, Care2Earn provides a comprehensive comparison across different banks and assist you in choosing the best LAP product suited for you.
After you have selected your lender, you have to fill in the application form wherein the lender requires complete information about your financial assets & liabilities; other personal & professional details together with the property details & its costs.
You are required to submit the necessary documents to the bank which will be verified together with the details in the application.
Bank checks out the borrower's loan eligibility (through repayment capacity) & the amount of loan is confirmed. The borrower's repayment capacity is reached which is based on the income, salary, age, experience & nature of business etc. Bank also checks credit history through the CIBILScore which plays a critical role in deciding & approving your loan application. Low Credit Score implies that the bank upfront rejects your application on the basis of earlier credit defaults; on the other hand high credit score gives a green signal to your application.
The bank asks the legal documents of property from the borrower to check its authenticity so as to keep them as a security for the loan amount given. The lender would carry out Legal verification to ensure your property is clear from any legal encumbrances. The next step involved is the technical valuation of the property by the bank which determines the current market value of the property and loan amount which can be given to you on the basis of current market value. The Loan to Value (LTV) is pre determined and is regulated by RBI.
After the credit appraisal of the borrower bank decides the final amount & sanctions the loan, the bank further sends an offer letter to the borrower which constitutes the details like rate of interest, loan tenure & repayment options etc.
The borrower needs to send an acceptance copy to the bank after the borrower agrees with the terms & conditions in the offer letter.
You are now ready to sign the property loan agreement. All that’s left is for you to submit your original property documents, a few postdated cheques, and the loan agreement. That’s it! Lender will issue a cheque in the your favor . Your EMI commences from the day of disbursement
Generally the documents required to processing your loan against property application are almost similar across all the banks; however they may differ with various banks depending upon specific requirement etc.
Below listed are the documents that is required to process the loan faster. Self Attested copies of Documents are required
Personal Documents
The Signed application form duly filled with photograph ID/ Age Proof - PAN Card/ Passport/ Aadhar Card and Residence Proof – Passport/ Utility bills/ Bank Statements. Cheque of Processing Fee
Salaried Individuals
Last 2 years Form 16 or Income Tax Returns Last 3 months salary slips Last 6 months bank statement reflecting salary credits
Self employed Individual/ Proprietorship
Proof of Business- Shop and Establishment Certificate/Vat Registration Certificate/ Service Tax Certificate Last 3 years IT tax returns with profit and loss account and balance sheet duly audited by CA Latest 12 months bank statement- Savings Account and Current Account Existing Loans’ Sanction letters accompanied with repayment track Business profile on the letterhead of the company
Partnership Firm/ Partnership LLP
Age proof of all the partners in the form of PAN Card, Passport or Adar Card PAN Card of the company Residence proof of all the partners –Utility Bills/ Passport/Bank statement/ Registered rent agreement Proof of Business- Shop and Establishment Certificate/Vat Registration Certificate/ Service Tax Certificate Latest 3 years Income Tax returns with profit and loss and balance sheet duly audited by CA. Latest 12 months bank statement of the Company and of the Partners’ Savings Bank Account Partnership deed Existing Loans’ Sanction letters accompanied with repayment track Business profile on the letterhead of the company
Private Limited / Limited Company
Application form duly filled with photographs of directors. Age Proof of Directors- PAN Card, Aadhar Card, passport Residence Proof of Directors- Utility Bills/ Passport/Bank statement/ Registered rent agreement PAN Card of Company Education Qualification- A professional qualification certificate in case of Doctors/CA/Architects Proof of Business- Shop and Establishment Certificate/Vat Registration Certificate/ Service Tax Certificate MOA, AOA, List Of Directors, Share Holding Pattern of the Company Last 3 years IT returns with Profit and Loss account and balance sheet duly audited by CA. Latest 12 months bank statement of Company of all current accounts and the same for Director’s Savings Bank Account Existing Loans’ sanction letter with repayment track of company and Individual Directors Business Profile on the Letter Head of the Company
Property Documents
Occupancy Certificate Approved Plan of building Chain of deeds in case of resale property Nil Encumbrance Certificate- EC ( if applicable) Copy of Sale Agreement / Draft Sale Agreement Copy of Stamp Duty Receipt Copy of Registration Receipt Copy of Building Sanction Plans Copy of Chain of Agreements (if any) Copy of Share Certificate (if Society formed) Copy of Payments Receipts made towards the Property Copy of Allotment Letter from Builder (if allotted)
A loan against property is a loan that is given against the mortgage of property. The loan against property interest rates make them more attractive than personal loans. If you were to take a personal loan, the interest rate would be 16% - 21%. Taking a loan against property means you pay interest at the rate of 11% to 14.50%. This difference is because your property is guaranteed against the loan.
Some of the Eligibility Criteria when applying for a Loan against Property Are As Follows
Income Age (min. 24 years) Property Valuation Existing Liabilities (if any) Current Work Experience Financial Documents Number of Dependants
Loan To Value (LTV) for Loan Against Property :
The loan is provided at a certain percentage of your property's market value, usually somewhere between 40% and 70%. Loan against Property is given on the below mentioned property types and the percentage of loan you can get is given below:
Loan against Property - For a Residential Property
Self Occupied -65% of Property Value
Vacant - 55% of Property Value
Rented - 55% of Property Value
Loan against Property - For a Commercial Property
Self Occupied - 50% of Property Value
Vacant - 40% of Property Value
Rented - 40% of Property Value
This varies from Bank to Bank by 5 - 10% of the above mentioned percentages.
Age of Applicant:
The minimum age at which you can borrow a loan is usually 24 years, and the maximum age for an employed person is 60, and a self-employed individual is 65.
Tenure of Loan:
The tenure of an LAP (Loan Against Property) is longer than most other loans. You can get one for a maximum period of 10 years. Since their rate of interest is lower, and they have such a long repayment time, it's a cheaper option than any other loan.
Financial Eligibility:
In order to calculate how much you would be estimated to pay, most banks use a formula which is given below.
Loan Against Property for Salaried Individuals:-
{(NMI - Obligation) * 60%} / EMI per Lac
Loan Against Property for Self Employed Individuals:-
{(NMI - Obligation) * 65%} / EMI per Lac
Whichever is lower from the value of the property (LTV) or your income- that loan amount will be given to you.
Credit History :
Past credit history is taken into account while sanctioning the loan and the CIBIL score plays an important role in such decisions. To add additional security, the bank will ask for a co-applicant. A co-applicant can be any other person with income proofs. The co-applicant may or may not be a co-owner of the property.
Insurance:
To ward of any unforeseen risks, the bank will insist on accidental insurance cover for the property in question. Also, the bank prefers the borrower to get life cover (term insurance) in case of an untimely demise.
If you are looking at moving into a new office or expanding your business, you can opt for commercial property loan . Banks and NBFC sprovide loans for purchase of commercial properties and assist you to acquire a new commercial property to meet the requirements of your growing business.
Shop Extension Loan-Loan facilitates available for the extension of an existing commercial unit, be it an additional shop, a larger customer waiting area based on the estimates from reputed civil works agency and necessary regulatory approvals being in place. Shop Improvement Loan-Shop Improvement Loans facilitate the internal and external repairs and other structural improvements like flooring and tiling, internal and external painting, plumbing and electrical work, waterproofing and roofing, grills and aluminum windows, paving of compound wall based on the estimates from a civil works agency . Plot + Construction Loans-With this loan you get access to a plot loan and a construction loan which will help you with the finance required to acquire a plot and construct your unit on it. Construction Loan-Banks provide loans for construction of a commercial unit on the plot already owned by you.Lease Rental Discounting (LRD) is a loan offered by banks and financial institutes against the rental receipts derived from leasing the commercial property. These lease contracts are normally long term in nature and with reputed corporate. Under Lease rental discounting, the borrower avails a loan by pledging the future rental income to the lender.This product is aimed at providing finance to property owners who have fixed rent receivables from corporate tenants. Discounted cash flow of rent receivables is paid upfront to borrower at very competitive rates. Property owners can get the funds immediately which they can utilize to create further assets which can yield higher returns and appreciations. Alternatively, the funds can also be deployed for expansion of business activities. This product is only applicable for fully constructed properties (either commercial or residential) and most lenders prefer only large corporate as the tenants in the lease. The primary security is rent receivable & escrow account in which all the rent will be received and the collateral security is charge by way of mortgage of premises given on lease against which the rent is receivable. The loan eligibility is derived from Net Present Value of rent receivables. The strength of the proposal depends also upon the creditability of the lessee, nature and tenure of the lease agreement, and the location of the property.The maximum amount of loan that can be availed depends upon both the value of the property as well as the amount of the rent being received. Typically the banks and financial institutes restrict their sanction to 50% – 70% of the property value. Also the lenders ensure that the EMI payment on the Lease Rental Discounted loan does not go beyond 60% – 70% of the rent being received on the property. The rent received on property is discounted. A borrower receives a percentage of the present value of rental. Hence the name Lease Rental Discounting!
If you are looking at moving into a new office or expanding your business, you can opt for commercial property loan . Banks and NBFC sprovide loans for purchase of commercial properties and assist you to acquire a new commercial property to meet the requirements of your growing business.
Shop Extension Loan-Loan facilitates available for the extension of an existing commercial unit, be it an additional shop, a larger customer waiting area based on the estimates from reputed civil works agency and necessary regulatory approvals being in place. Shop Improvement Loan-Shop Improvement Loans facilitate the internal and external repairs and other structural improvements like flooring and tiling, internal and external painting, plumbing and electrical work, waterproofing and roofing, grills and aluminum windows, paving of compound wall based on the estimates from a civil works agency . Plot + Construction Loans-With this loan you get access to a plot loan and a construction loan which will help you with the finance required to acquire a plot and construct your unit on it. Construction Loan-Banks provide loans for construction of a commercial unit on the plot already owned by you.Lease Rental Discounting (LRD) is a loan offered by banks and financial institutes against the rental receipts derived from leasing the commercial property. These lease contracts are normally long term in nature and with reputed corporate. Under Lease rental discounting, the borrower avails a loan by pledging the future rental income to the lender.This product is aimed at providing finance to property owners who have fixed rent receivables from corporate tenants. Discounted cash flow of rent receivables is paid upfront to borrower at very competitive rates. Property owners can get the funds immediately which they can utilize to create further assets which can yield higher returns and appreciations. Alternatively, the funds can also be deployed for expansion of business activities. This product is only applicable for fully constructed properties (either commercial or residential) and most lenders prefer only large corporate as the tenants in the lease. The primary security is rent receivable & escrow account in which all the rent will be received and the collateral security is charge by way of mortgage of premises given on lease against which the rent is receivable. The loan eligibility is derived from Net Present Value of rent receivables. The strength of the proposal depends also upon the creditability of the lessee, nature and tenure of the lease agreement, and the location of the property.The maximum amount of loan that can be availed depends upon both the value of the property as well as the amount of the rent being received. Typically the banks and financial institutes restrict their sanction to 50% – 70% of the property value. Also the lenders ensure that the EMI payment on the Lease Rental Discounted loan does not go beyond 60% – 70% of the rent being received on the property. The rent received on property is discounted. A borrower receives a percentage of the present value of rental. Hence the name Lease Rental Discounting!
