A loan against property is a secured alternative of personal loans. You can use the funds for any purpose, similar to the latter. You get a high amount, longer tenure, and lower rate of interest with a loan against property compared to any unsecure loan. While applying, you have to mortgage an asset to avail a loan against property.
The process to apply for these loans is relatively simple since the documents required for a loan against property is also minimal.
Below is the list of documents needed for a loan against property:
Relevant documents of the property that you want to mortgage.
- Voter ID.
- Driving License.
- Photo identity card from a Government department/organisation (for salaried applicants).
Proof of Address
- Any KYC document with your permanent address
- Electricity bill
- Telephone bill
- Water bill
- Gas bill
- Post-paid mobile bill
- Property or municipal tax receipt
- Life insurance policy
These three documents are mandatory to avail a loan against property irrespective of the customer being salaried or self-employed.
In addition to the above, documents required for a loan against property also include:
- Salary slips of the previous two months.
- Bank account statements of the last six months.
- Income tax returns of the previous year.
- Relevant financial documents like Balance Sheet and Profit & Loss Statement audited by a CA.
- Income tax returns of the last two years.
- Proof of business like GST registration certificate, SEBI registration certificate, Memorandum of Association, Articles of Association, SSI registration certificate, Trade License, etc.
You may also have to provide additional documents required for a loan against property as per the lender’s need.
Do make sure to fulfil the age requirement along with submitting the documents. Salaried individuals have to be between the ages of 33 and 58 years while self-employed applicants have to be between the age bracket of 25 and 70 years.
Follow these tips when availing a loan against property:
1. Lower your Debt-to-Income Ratio
A low debt-to-income ratio can increase your chances of availing a loan against property. Lenders prefer customers whose fixed monthly obligations is not more than 30-40% of their income. They may reject your application or lower the loan amount if you have a high debt-to-income ratio.
Clear your existing debts like credit card bills and loans to lower your debt-to-income ratio.
2. Apply for the Right Loan Amount
Lenders assess the mortgaged property value and your income to reach at the loan to value (LTV). LTV is the ratio of the loan amount to the market value of your property. LTVs can only reach a maximum of up to 90% of the property value.
Financial institutions may reject your application if the LTV is too high considering your repayment capability since it makes it risky. They may charge you a high rate of interest if they approve your loan.
Hence, keep the LTV low to enjoy lower interest rates and ensure your application gets approved.
3. Choose the Right Tenure
Your EMIs and cost of loan depend on the tenure you opt for. Longer tenures keep the EMIs low but increase the total payable amount. Contrarily, shorter tenures do the opposite.
For example, your EMIs will be Rs. 48,000 and the cost of loan Rs. 47 Lakh if you avail a loan of Rs. 40 Lakh at a 12% rate of interest for 15 years.
The same loan will come with EMIs of around Rs. 44,000 and the total cost of loan about Rs. 60 Lakh if the tenure becomes 20 years.
4. Part-pay and Foreclose your Loan when Possible
Make sure to part-pay or foreclose when you have excess funds. NBFCs like Bajaj Finserv don’t charge any additional processing charges for Loan Against Property when you do so at floating interest rates.
Now that you know what is a loan against property and the documents required to apply, compare the interest rates and charges offered by various lenders and chose one accordingly.