10 Factors that Matter when Applying for a Loan Against Property

A loan against property is a kind of secured loan, where a borrower pledges their existing property to obtain a loan from a lender. It is an ideal loan option for individuals with mediocre credit scores who want to avail of lower interest rates. The sanctioned loan amount is typically 40% to 70% of the property’s market value. The repayment period could be stretched to almost 15 to 20 years, within which the loan applicants must repay the amount in monthly settlements. If the borrower is unable to repay the loan amount, lenders have the right to seize the property for good.

A loan against a property can be used for a variety of purposes including business expansion, medical emergencies, and education purposes. You can also claim tax benefits under section 37 (1) of the Income Tax Act if you use the loan against property to fund business expenses. Tax reductions of up to INR 2 lakhs can also be done under section 24 (B) of the Income Tax Act if it is used to purchase another property.

10 factors to note when applying for a loan against property

When applying for loans against property, there are several factors that may impact the loan amount, interest rates, and overall loan terms. Here’s a quick list of all the important checkers to go through before applying for a loan against property.

• Age and income: Your age and income can have a monumental impact in determining your loan amount. If you are too young and do not have proper documents or if the property is not in your name, you may not be able to move forward with the loan application. If you are between 28 to 58 years, you can apply for a loan against a property. You must be a salaried employee or have enough income as a self-employed individual to apply for these loans. Unless you can show at least three months’ salary slips or paid invoices and six months’ bank transactions, you cannot avail of a loan against a property.

• Credit score: CIBIL scores are like your financial report card. If you have bad scores, you are viewed as an unreliable borrower. It is a no-brainer that if you have a poor repayment record, lenders may outright refuse to go forward with your loan application. It is very important to have excellent credit scores to avail of lower interest rates and better loan terms in the cases of a loan against a property.

• Property valuation: The market value of the property you offer as collateral will determine the amount of money you can borrow for loans against properties. The lender will assess the property’s present market value and offer a loan amount accordingly. It is never the exact amount but a certain percentage of the market value of the property, depending on your income, assets, and credit scores.

• Type of property: Whether your property is in a residential complex or underneath an office or right next to a tragic site will impact the amount of money you can sanction from it. Naturally, apartments in prime locations will yield a better loan amount, since the retail market is all about location. Understand that your property is the ticket to your money in the case of a loan against property. The better it is, the more money you can sanction. Of course, your credit score and income have to match the loan amount.

• Existing debt: Make sure to check your fixed-income-to-obligations ratio (FOIR) before applying for loans. If you have too much existing debt, lenders will be reluctant to sanction you a larger loan amount. There is nothing wrong with waiting for a few years before applying for a loan against a property if you do not plan to use it for emergency purposes. Do not try to stretch yourself too thin with EMI payments, for it is impossible to sustain in the long run.

• Loan amount: Your loan amount will depend on the value of the property and your repayment capacity. Please borrow only what you can comfortably repay. If you are choosing to opt for a loan against your property for tax benefits, ensure that you can pay the monthly settlements. Tax exemptions won’t be of much use if you are struggling to pay the monthly EMIs.

• Loan tenure: The loan tenure that you choose will affect the loan amount, interest rate, and overall cost of the loan. If you choose a longer tenure, you may get smaller monthly EMIs, but you have to pay the interest over a longer period. Again, if you choose a short loan period, you have to pay higher EMIs, which may affect your quality of living. You have to choose a loan tenure based on your income and credit score. Be honest with yourself and choose a loan amount that won’t snowball into a financial headache in the long run.

• Additional charges: When you apply for any loan, make sure to read the fine print and talk to the lenders clearly. Some lenders may charge extra money like processing fees and additional costs to raise the loan amount and affect the interest rates. This is why it is advantageous to have a DSA agent in the fold. They simplify the legal jargon and explain the loan conditions in layman’s terms so that customers know what they are signing up for.

• Documentation: Different lenders require different documents to sanction loans against properties. Make sure that your property evaluation documents, tax payments, income records, and identification documents are all up-to-date with the latest information to avoid any delays. If there’s any discrepancy, it may halt your entire loan application.

• Lender’s requirements: Make sure to compare lenders, evaluate the kind of interest rates each one is offering, what are their loan terms, and research their previous customer feedback before choosing a lending firm. Also, make sure that you choose a lender with relatively proactive customer service. You have to constantly follow up with them and push them to complete your property evaluation before the loan procedure begins. Bad customer service will delay you further. After analyzing different lenders, choose the one that offers the best loan suited to your needs.

While collateral loans like a loan against property are the best kind of loans with lower interest rates, you may suffer major financial setbacks if you miss monthly payments. If you miss multiple EMIs, you may be at risk of losing your property for good. If you are looking for a reliable financial firm to take loans against your property, check out ApnaPaisa. With over 125 tie-ups with India’s leading banks and financial institutions, they have the widest choices for the best deals and experienced professionals to help you understand if you can comfortably repay your loan.