9 Factors That Affect Your Eligibility for a Loan Against Property
If you need a loan, you can use your property as collateral and get a loan against it. You can also avail this loan if you have built equity in your home. Here, you use the value of your property to get the loan. The loan can be used for just about anything – funding your child’s higher education, paying for your child’s marriage, using the funds to expand your business, or paying to renovate your home.
Nowadays, it is easy to Apply for a Loan Against Property. You can do it online with relative ease, as long as you have the necessary documents that most lending institutions require. When looking for Loan Against Property (LAP), make sure you check the eligibility criteria and interest rate. Meeting the eligibility criteria ensures your loan application gets approved while negotiating the best possible interest rate allows you to keep the EMIs (Equated Monthly Instalments) affordable.
However, banks and lending institutions consider specific factors while approving or denying loans. You should know these factors as they have a profound effect on a Loan Against Property.
1. Loan Tenure
You have the choice between shorter or longer loan tenure. If you go in for a longer tenure, it will enhance the eligibility of the Loan Against Property. On the other hand, if you opt for a shorter tenure, you will save money on interest payments, but the eligible amount will decrease.
Lending institutions also consider your age to finalize the tenure. If you are young, you can get a longer tenure, but if you are an older adult, the tenure will end before your retirement age.
2. Age of the Property
Lenders have a maximum age limit for how old a property can be that can be used as collateral for a loan. The tenure of the Loan Against Property cannot exceed the age limit imposed by the lender. If the property is old, it can work against you as the value of the property will be lower. On the other hand, if it has been renovated and is in good condition, lenders will view your application more favourably.
3. Income Tax Returns
Income tax returns are mandatory, especially for self-employed individuals. Usually, lenders ask prospective borrowers to furnish the last three years’ returns. However, if you have filed returns for two years, you will have to submit bank statements and other documents to prove to the bank that you have a steady flow of income.
4. Income Flow
When you apply for a LAP, it is necessary to have a regular income source. Having proper flow of fixed income each month offers a guarantee to the lender that you will be able to pay the EMIs without a problem. The risk of default minimizes and should it occur; the lender always has the option of selling the pledged property and recovering their dues. However, this process is long and cumbersome, and most lenders look for ways to avoid it.
5. Mortgage Insurance
If you haven’t thought of mortgage insurance, now is a good time for it, especially if you taking Loan Against Property. The insurance lowers risk not just for the lender, but also the buyer. Lenders are more conducive to approving the loan when you demonstrate to them that you have no qualms about taking out mortgage insurance.
6. Interest Rates
When you apply for property loan, you have a choice between fixed and floating interest rate. In the former, the interest rate stays the same throughout the loan tenure. In floating interest, the rate varies based on market conditions and can prove to be a boon for you if you opt for a short loan tenure.
A co-applicant can be your spouse, children or parents. If your credit score is not the best, it is advisable to apply for a property loan with a co-applicant. This will improve the chances of getting the loan and the eligibility also increases. You and the co-applicant will have to co-sign the loan documents and provide information sought by lenders.
8. Charges on the Loan
Besides the interest rate, lenders also charge a range of other fees that you would have to bear. Some of these charges include processing fee, GST, pre-closure charges and renewal charges. Get a break up of the fees that the lender intends to levy; add them to determine the actual cost of availing Loan Against Property.
If you happen to have just Patta (a legal document which is issued by the Government of India in the name of the owner of a particular plot of land.) for your property without the title deed, it may adversely affect your loan application. Many lenders are wary of lending against the property if the person is unable to demonstrate ownership through title deed.
Getting Loan Against Property is not that difficult if you meet the credit terms and conditions. However, it is important to find the best deal to enjoy maximum benefits. The financial experts at MyMoneyMantra will help you find the Best Loan Against Property Deals to suit your requirements and financial situation.
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