Taking a loan against property is a popular way to avail funds. However, there are some important factors to be considered before you apply for a loan.
Securing a loan against property (LAP) is popular amongst micro, small and medium business owners. Individuals in need of urgent cash also avail the loan, as homeowners can get the loan quickly and easily. However, before applying for a loan, it is important to understand loan against property interest rates and tenures as both these factors impact the EMI.
Apart from these two, there are five other essential factors which you need to consider before you begin the loan application process. Some of these are discussed below.
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Value of the property
As an applicant or borrower, you must be up to date with the existing market value of the property. Before applying for a LAP, the applicant can get an independent valuation expert to estimate the property value. It would help you get a better idea of how much loan to apply for without getting rejected. Banks have independent technical experts who value the worth of a property by taking various factors into account. An applicant can get LAP up to 90% of the property’s value. Just make sure you get the encumbrance certificate.
The income and repayment ability of the borrower
Usually, a loan against property is a substantial amount. Banks will carry out checks to ensure that you can pay the EMI, as per the stipulated timeline. For this reason, they will require you to submit past and present proof of income. Salaried employees can share salary slips while self-employed can share IT returns for the last 2-3 years. Loan tenures can go up to 15 years, and therefore, you also need to plan your income for the long-term loan to enable easy repayment.
Most people have the misconception that banks are looking to seize and sell their property. It is the opposite infact. Banks undertake multiple and stringent scrutinizations to avoid selling a property as it is a time and effort-intensive exercise.
A bank will allow you to have a co-applicant for the loan, even if the co-applicant is not the owner of the property. For example, you can ask your spouse, sibling, adult child, or parent to be a co-applicant when taking a loan against a self-owned home. Remember, the bank will run a credit history check on all applicants before sanctioning the loan.
Ownership of property
Ownership of the property is established before the loan is sanctioned. If you are the sole owner, you can apply for the loan directly. In the case of co-owned property, banks usually require a no-objection certificate, or for the co-owners to be co-applicants. Another thing to keep in mind is that the property should not be under dispute.
Be aware of the fees
Bank have additional charges such as processing fees, pre-closure charges, sales tax, and penalties on late deliveries. The borrower must accordingly provision for these expenses to bear them without hassles.
By keeping these five things in mind, an applicant can be better informed and thus improve the chances of acquiring a loan against property.