Your dream home is an entity of great value, both emotionally and financially. Getting or building a dream home is a milestone that one hopes to achieve in one’s lifetime. The main question that constantly bugs you all this while is where will the money come from? What if Regrob were to tell you that you can finance your dream home by taking a loan against a property? Owning a property comes as a boon to you. Keep reading on to find out how.
What is a loan against property?
It is exactly what you would think it is in the first guess, since the name makes it amply clear. A loan is given or disbursed against the mortgage of property. The loan is given as a certain percentage of the property’s market value, usually around 40 per cent to 60 per cent.
Loan against property belongs to the secured loan category where the borrower gives a guarantee by using his property as security. One can avail these mortgage loans for commercial property or residential property securities. The property is mortgaged and a fixed percentage of the prevailing market value of the property is given to the borrower as a loan.
Though such a property is mortgaged with the lender, you are still allowed to continue using it for residential or commercial purposes.
These loans are a better option as compared to a personal loan due to the comparatively lower rate of interest charged by the lender. Additionally, unlike gold loans, where the gold ornaments are deposited with the bank and you do not get them back till the loan is paid in full, you can continue using the property used as collateral while you are repaying the loan.
What properties can be mortgaged for a loan?
Loan can be taken against the properties mentioned below-
· Loan against Residential Property/Plot.
· Loan against Commercial Property/Plot.
What are the eligibility criteria for availing a loan against property?
The eligibility criteria to avail a loan against property vary from bank to bank, but most of the basic criteria remain the same. The basis for most loans against property relate to the profession of the borrower. The applicant should be either one of the following to be eligible for a loan against property. Click here to read about calculate your home loan eligibility.
For Salaried Individual
- The individual should be a permanent employee with the government or a reputed company.
- The minimum age to avail loan against property is generally around 24 to 25 years.
- The applicant can be a professional in any field (doctor, engineer, architect, chartered accountant, etc.).
- The maximum age of the applicant can be 65 years.
- The individual should be a regular at filing income tax returns.
- The individual should have been in the same business for a minimum number of years – generally between 3 to 5 years.
The property in question should be free from legal tangles and should have clear titles registered in the name of the applicant.
Documents required for availing loan.
Following are the documents you would need to submit for all applicants / co-applicants along with the completed and signed Application Form for loan approval:
· Proof of both identity and residence (any 1)
o Valid Passport
o Voter ID Card
o Aadhaar Card
o Valid Driving Licence
· Proof of income
· For self-employed-
Certified financial statement for the last 3 years.
· For salaried-
o PAN Card
o Last 3 months’ Salary Slips
o Last 6 months’ Bank Statements, showing salary credits
o Latest Form-16 and IT returns
o Employment Contract / Appointment Letter in case current employment is less than 1 year old.
o Last 6 months’ Bank Statements showing repayment of any ongoing loans.
o Passport size photograph of all the applicants / co-applicants to be affixed on the Application Form and signed across.
o Cheque for processing fee
o Declaration and documents clearly stating the end use of the loan
o Own Contribution Proof
Property related documents
o Title Deeds including the previous chain of the property documents
o Proof of no encumbrances on the property
o Approved plan if applicable
Interest rates for loan against Property
An individual who wishes to take a loan against property can choose between two types of interest rates. These interest rates vary according to the duration of the loan.
Fixed Interest Rate –This interest rate remains fixed throughout the loan duration. It varies from institution to institution but the general rate lies in the 11.35% – 19% per annum range.
Adjustable Rate –This interest rate is not fixed and static, it varies according to prevailing market conditions. This could be beneficial for those who wish to keep the loan for a short duration.
1% of the loan amount plus service tax, maximum of Rs. 50,000/- plus Service Tax.
It varies according bank to bank.
- NRIs can avail loan against property as well, provided they present all the required documents as needed by the bank.
- A loan against property can be availed only after attaching the property as security. The property so attached should have clear titles and should be free from encumbrance. It should not have any existing loan, mortgage or litigation which can impact the title of the property.
- A loan against property can be availed against a property owned by multiple individuals too if all the co-owners of the property become co-applicants for the loan.
- Lastly, the loan can be prepaid, subject to certain rules as stipulated by individual banks.
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