Important things to know before applying for a Loan against Property!

Loans are divided into secured and unsecured loans. To address different financial needs, banks and NBFCs offer loans at different interest depending upon the risks involved. A loan against Property is a secured loan product offered to meet big-value credit requirements. Secured loans are high-value loans with real estate property as collateral. The immovable properties include residential and commercial buildings, vacant lands, industrial land, etc. 

Almost every Bank and a few Non-Banking Finance Companies (NBFCs) offer loans against property. However, before going on to apply for a loan from every lender, you need to evaluate your options and these are the important things to consider before applying for a loan against property. 

Know your eligibility

Certain factors decide the eligibility for approving a loan against property. Lenders carry out their own background verification to evaluate the repayment capability and income of the applicant including credit behavior. Banks and NBFCs examine the capability of both salaried and self-employed applicants. Evaluating the repayment capability is necessary for banks even though it is collateral-backed. 

The general consideration is that only half of the applicant’s monthly income is eligible for loan repayment. So, if the applicant has requested a loan with a monthly EMI value of more than half their income, the entire requested loan amount cannot be approved by the lender. Here’s a quick look into the eligibility criteria. 

• The applicant must have a good credit score
• A steady income is considered preferable instead of a one-time income
• EMI value should be less than 50% of monthly income
• Existing loans and their EMI will differ in the chances of approval
• Your past loans and repayment track will affect your eligibility
• Declaring the income of the dependants will increase the chances
• If the applicant is married, including the spouse in the application will increase the chance of loan approval

Proper Appraisal of the Property

The lender evaluates the collateralized property when an application for a Loan against Property is received. It would be really beneficial to evaluate your immovable asset value before applying. After the initial processing of the loan application, the lender evaluates the property value. However, the banks won’t approve the complete value of the property. The factor called LTV (Loan to Value ratio) will determine the sanctionable amount. Which varies from lender to lender. 

For example, if the value of the collateral property is Rs.50 lakhs, and the bank has 80% LTV, then the maximum loan that can be approved is Rs.40 lakhs. 

Rate of Interest comparison 

Different Banks and NBFCs offer loans at different interest rates. It will be wise to compare the interest rates of different lenders before applying. Unlike unsecured loans like Personal and Business loans, a Loan against property is secured and has a low rate of interest.

Additional charges for loan processing

In addition to the interest, there is various charges banks levy on the loan applicant. The applicant should always enquire about these charges and compare them with other lending institutions.

• Processing Fees – 0.5% – 2% of the loan amount is charged as a processing fee along with applicable GST. 
• Legal and Due diligence charges – Lenders levy fixed charges for legal and due diligence charges of Rs.5000 – Rs.10000 for legal verification of collateral property.
• Pre-payment and Foreclosure charges – Banks charge additionally for early closing of loan accounts or pre-paying. The charges vary from lender to lender. 

Tenure and Loan value

The applicants must not just compare the rate of interest but also the tenure of repayment and the value of the loan. 

Benefits of a Loan Against Property 

Here is a list of benefits of a loan against property from banks and NBFCs.

• Longer tenure for repayment
• Less and competitive interest rate
• Higher loan value depends upon the appraisal of the collateral.
• Flexible fund usage
• Better approval chances
• The applicant will always own the property 

Conclusion

A Collateral backed Loan against property is the easiest and most efficient way to raise funds for different needs. A loan against property is high value and can be used for a lot of purposes without any restriction. If you too are looking to get a Loan against property in Bangalore, contact Money Mango for all your mortgage or Home Loan needs and competitive Interest rates.