Dos & Don’ts of Mortgaging Property without a Proof of Income
Mortgaging a property is a very good way to obtain low interest, secured debt. It is easy for a banker to lend money when you pledge a property. This assures the lender that you are committed to returning money and getting back control of the property. However, there is another catch, what if you want to get a Loan Against Property when you do not have income proof? This is difficult but not impossible. If you follow some basic ‘Dos and Don’ts,’ you will able to get a good deal when you mortgage the property without any income proof.
Do these things!
Get a joint loan with a co-borrower: This is a very basic and simple way to get a loan when you do not have your income proof. Find a family member who does have income proof. Try to convince them to become a co-borrower with you when you Apply for Loan Against Property. This is going to be rather easy considering two things. First that your family member has a clearer picture of how you are making money for your regular expenses, and second, unlike a bank, your family member is not bound by strict rules related to documentation.
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Present your income tax returns: Let us assume that you are not making income in the normal salary and are using freelance methods to get money for regular expenses. This still means that you are filing Income Tax Returns, and TDS is also being deducted for you. In some cases, the banks can be convinced to consider your Income Tax Returns and TDS Form 16 in place of income proofs when you apply for LAP. These are valid government documents to show that you are making money. The main catch with these documents is that it totally becomes a matter of lender’s discretion if they want to consider these tax documents as a replacement for other income proofs.
Share your savings account details: Your Savings Account is the nerve centre of all your financial activity. It is where all your money comes in, from where all your money goes out to different places. If you want to get a clear picture of your cash flow, look at your Savings Account statement for the last one year. Not many banks may be willing to accept your Bank Statement or Income Tax Papers individually as proof of income. When you present documents related to these together, you will be able to convince the lenders that you have a decent cash flow and will be able to service the debts.
Share the details of your long-term savings: Almost everyone has some long-term savings. Some people have money invested in PPF or NSC. Others have money invested in SIP, mutual funds, or stock holdings. While these might not be direct sources of income, but you can use them to show the bankers that you have long term capital and can take care of loans that you borrow. Besides, banks can also gauge that a person who has money stored in long term savings and investments is a financially mature person who can be relied upon to pay their dues.
Accept a lower Loan to Value ratio: When you take out a Loan Against Property, you will not get a loan amount equal to what is the market value of the property. HDFC Bank Loan Against Property is offered at 65% of property value. Even the best of customers who have stellar Credit Scores and provide huge business to the banks get a maximum of 70% of the property value. If you are approaching the bank to get a loan against property but do not have income proof, one choice is to accept a lower loan to property value ratio. Check with the lender about how low you can go. Be ready to accept as low as 55% LTV.
Try instant personal lending apps: This is a way in which you circumvent the entire no income proof thing. Instead of choosing a Loan Against Property, you can choose instant Personal Loan apps like Money Tap or MoneyView. Many of these apps do not actually require income proofs for small loan amounts. If you think you can do with a lower loan amount, you can choose these apps. Due to competition, they can offer interest rate closer to Loan Against Property Interest Rates, so you get a decent deal.
Don’t do these things!
Don’t go too low on loan to property value ratio: As discussed, when you are taking a Loan Against Property you will not get loans up to 100% value of property. You will have to go low on the amount you can borrow as compared to the value of property you are pledging. The lowest recommended ratio is generally 55%. If the situation is extremely serious, you may consider going another 5% down to 50%. In no circumstances should you go even a percentage point below this number. Anything below 50% and you are actually better off looking for alternatives to Loan Against Property.
Forging income documentation: Some people will suggest you create fake income proofs. With a bit of research on the internet and a simple printer attached to a computer, you might be able to print fake salary slips. You will not be able to prove these as a valid income because you will not have the money trail in any bank to prove that you got this salary. Similarly, banks will conduct employment checks when they process your loan requests. Once the red flag is raised, you will be lucky if you just get off with a rejected loan application. Banks may even file criminal cases against you for fraud and cheating. Always be truthful in your loan applications.
Choosing non-authorised lenders: Loans in India can only be given by companies which have been authorised to do so by the Reserve Bank of India. Do not try to get loans from non-authorised lenders. Always check properly if the firm you are dealing with is an authorised lending firm or not. Dealing with non-authorised lenders will mean that you will run the unnecessary risk to your life and limb as well as to your property.
Remember that when you apply for a loan against property, things may seem difficult if you do not have income proof. Still, with some careful considerations, you can secure a good loan amount and tread through the financial crisis with much ease.
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