A loan against property is a secured loan preferred by lenders and borrowers. You can get a home loan of a much higher amount against property with lesser formalities. RBI and Banks encourage people for home loans through attractive offers, policy changes, lower interest rates, etc.
Though it is comparatively easier to get, a loan against property can get challenging to obtain because of specific reasons. Stay with the passage to know the significant seven difficulties with a home loan against property in India.
Seven Obstacles in Getting Loan Against Property
Problem of Rejections
Banks and financial institutions reject loan applications for multiple reasons such as incorrect papers, fake details, poor credit history, and many more. To overcome the problem, you need to do research. You can also meet bank executives and know all the requirements of the bank for home loan approval.
Rejections could be frustrating and tiresome. To avoid contradictions, your documents must match the requirements set by the lending body. Rejection also happens if your given contact number and address do not verify for whatsoever reason.
Loan Processing Charges
Another problem people face is non-refundable processing charges. Financial institutions charge around 0.25 to 1 per cent of your applied home loan amount. Banks would not pay back this amount if your loan application got rejected for any reason.
Banks have their own rules and regulations for approving loans against property. Banks or loan distributors can consider paying back processing fees if you have a good relationship and an old account with the lender.
But ensure to make it a legal document because verbal statements are of no use in banks and financial institutions.
Less Loan Amount than Desired
There might be a difference between the amount you desired and the loan sanctioned. Banks have a fixed set of rules to consider your eligibility. They assess property value, your liabilities, monthly salary, nature of employment, etc., to decide how much loan you can repay. Your bounced checks, default history, etc., also affect your loan amount approval.
There is a provision of clubbing up to three earning family members as co-borrower to increase the loan amount against the property. You can use this provision if your desired amount is not getting approved.
Customers can also use PF, Insurance policies, NSC, etc., as collateral to increase the loan amount and chances of approvals.
The difference in the Property Valuation
The banks and loan distributors value your property according to several technical, legal, and financial aspects. The value of the property might be much less than your estimate. It is better to conduct valuation by an authorized valuator to avoid any surprises at the time of application.
The Interest Rate Problem
Banks offer fixed and floating rates of interest on loans against property. The floating rate depends upon the prime lending rate. If PLR changes, your rate of interest will also fluctuate. In terms of fixed rate of interest, banks can revise after two years.
The dilemma of deciding interest rate poses a problem while applying for a home loan against a property.
Down Payment for Loan Against Property
Banks can not sanction home loans against property more than 75 to 80 per cent of the property value. It means you have to pay a minimum of 20 to 25 per cent of the desired loan amount from other sources than the property.
The down payment needs consideration and arrangement for lakhs of money. This down payment has to pay before disbursal of the loan amount. If you do not deposit the amount, your loan will not process further.
In addition, if the valuation of the property is less than you estimated, your down payment will further escalate.
Some banks and financial institutions accept insurance policies, PF, and other Government supported schemes or down payments. Consult your loan distributor or bank to know if they approve these documents as collateral for the loan approval against the property.
Banks follow a format for submitting your property documents, NOC, and Title deeds. Any deviation can ruin your efforts of applying for the loan against property. Research on the web, talk to your loan distributor and submit the documents in the appropriate format to avoid rejection.
The obstacles mentioned above are generic. Loan borrowers can conveniently overcome these issues by following rules and regulations provided by loan distributors and banks.
Apply for a home loan against property carefully after understanding all the terms & conditions and get a home loan without hassles.