Property Loan

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Loan against property are contract/mortage loan which is provided by financial institutes and bank for both business and personal use.

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Why loan against property?

Anti-Property loans can be obtained for a various purposes ranging from home remodeling to purchase equipment and meeting short term needs . This is one of the safe proposal for the banks because they have property of customer against finance provided by them.

Many people prefer mortgage loans to cover costs such as their children’s educational needs, medical expenses, home renovations, and so on. Businesses prefer this loan to cover their working capital requirements which smoothens their business processes.

As this is a secured loan it is easy to procure from banks. Banks also maintains margin ranges from 50-90% of the value of property while sanctioning loan against property. Which is also known as Loan to value or LTV.

One of the important thing is rate of interest loan against property is less then interest rate of personal loan and the sole reason for this is that you give your property as a security against finance provided by bank.

Types of Loans Against Property

There are 5 types loans against property:

1. Business Expansion Loans:

These loans are made for long term growth where businesses avail this loan for new machinery, purchase of plant, meeting working capital requirements, and invest in new technology or business.For such loans banks require collateral in the form of property, residential, commercial, or industrial. Depending on the nature of the property available as collateral, the lending banks calculate the loan eligibility. For commercial properties, the LTV is around 55- 65%. In the case of industrial properties, the LTV reduces to 40-55% whereas the LTV in the case of residential property is in the range of 65-70%.

2. Working Capital Overdraft Facility :

This loan is used for everyday tasks of a business such as advertising, marketing, sales and many other functions. It is given to meet everyday working capital requirement .Amount of finance is decided by banks on the basis of Property value and nature of the property and Actual working capital requirement calculated as per the internal policies of the bank, usually the Projected Annual Turnover method.

3. Personal Expenses:

Loan against the Property can also avail by individuals for personal expenses such as medical expenses, educational expenses, marriages, travel, as well as for purchasing consumer durables.

4. Home Renovation:

Any person who wishes to carry out renovation in their Apartment/Floor/Row house. Existing home loan customers can also avail a Home Improvement Loan.

5. Lease Rental Discounting:

These are loans against rental receipts as collateral. The bank will examine long-term cashflow and provide the loan based on the exact amount. Banks usually finance in the range of 75% to 90% of the future lease/rent receivables. The tenure of such loans is shorter and should end before the expiry of the lease or the rental

Eligibility of Loans Against Property

Seven factors on which eligibility depends are:

1.Current Income:

Salaried Person:
Furnishing of the salary slips for the last three months and a bank account statement for the previous six months is necessary

Self Employed Person/Business Entity:
financial statements like Balance sheets and Profit &Loss statements are required

2. Continuity of Employment:

Employees :
Employment letter from the employer for the confirmation of employment supplement with Form 16, and IT returns for the past two years.

Self Employed/Business Professionals :
Proof of doing business like GST registration certificates, partnership deeds, and Certificate of Incorporation (for companies).

3. Current Obligations:

Borrowers to declare their current obligations. Like all the emis including the proposed one for the Loan against Property

4. Credit History:

All those banks which gives loans against property are members of CIBIL (Credit Information Bureau (India) Limited). They can check records from CIBIL to determine your credit score. Usually, a credit score in the range of 600 and above is acceptable.

5. Value of the Property:

Your eligibility depends on the value of the property. The LTV ratio is in the region of 40-70% depending on the location of your property.

6. Legal Scrutiny Report:

Panel advocates of bank determine the chain of ownership through search of the property in the respective Sub-Registrar. For determine if there are any restraint on the property. This search is critical as it allows the banks to understand whether you have the eligibility to create the equitable mortgage in favour of the bank.

7. Age of the Borrower:

The minimum age of the borrower should be 21 years at the time of application.

Features of Loans against property

Easy to get
Longer tenure
Lower interest rate
Lower EMI
Flexibility
Tax Benefits

Documents Required for Loans against Property

KYC Documents:

The borrower should furnish KYC documents regarding identity proof and address proof. These documents include:

Identity Proof

PAN Card
Aadhaar Card
Voter ID
Passport
Driving Licence
Address proof
Registered Rent agreement
Lease agreement
Passport
Latest gas/Electricity bill

Income Proof – Financial Documents

Salary slips for the last 6 months for salaried employees (In addition, IT returns for the previous 3 years along with Form 16)
IT returns for the past 3 years for self-employed persons (Some banks accept 2 years IT returns as well)
Statement of A/c for the past 1 year where your salary is credited (in the case of salaried people)
Profit and Loss statement and Balance sheet for the last 2 years in the case of self-employed persons
Sales tax, GST registration certificates, if applicable
Partnership deed in case of partnership firms (if the applicant is one of the partners or the firm itself)
Certificate of Incorporation for limited companies(if the applicant is one of the directors or the company itself)

Property Documents:

Copies of all property documents that can establish the chain of ownership for the past 30 years
Encumbrance certificate for 30 years
Property tax paid receipt