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What is Loan Against Property?

If you need funds to cater to a personal or business emergency, a personal loan is an ideal option. However, personal loans have limitations, especially when your requirements are huge. Under such circumstances, a Loan Against Property is a better alternative. Both personal loan and Loan Against Property are similar in many ways, but they differ a lot, as well. The eligibility criteria for a personal loan are different from that of a Loan Against Property. They differ in many other ways, too.

Loan Against Property Vs Personal Loans

Before we proceed with discussing the differences between the two, let us compare the similarities:

  • Both personal loans and loans against property help the borrower to cater to personal and business emergencies. These requirements can include medical treatment, marriage or educational expenses, and so on. From the business angle, these loans help you to tide over immediate working capital requirements or purchase of a long-term business asset.
  • Banks and financial institutions do not seek the reasons for applying for personal loans and loans against property. The lenders do not have any issues as long as the end-use of the loan is not for speculative purposes.

Here are the aspects in which the Loan Against Property differs from personal loan:

  • Personal loans are unsecured loans, whereas a Loan Against Property is a secured one
  • Personal loan has smaller exposure limits when compared to Loan Against Property
  • The eligibility norms for a personal loan differ from that of a Loan Against Property
  • The CIBIL score requirement for a Loan Against Property is not as high as it is for a personal loan
  • Usually, personal loans are not available in joint names, whereas borrowers can apply jointly for a Loan Against Property.
  • The personal loan is always a term loan, whereas a Loan Against Property can be in the form of an overdraft facility.
  • Personal loans are available for short tenures up to 60 months, whereas a Loan Against Property can have a mandate extending up to 20 years.
  • The rate of interest on a personal loan is considerably higher than that applies to Loan Against Property.
  • Compared to loans against property, a personal loan has a shorter TAT (turn-around-time)

A personal loan is ideal for meeting small requirements, whereas a Loan Against Property caters to more significant needs.

Loan Against Property - General Eligibility Norms

  • A Loan Against Property has a minimum and maximum age requirement. Usually, the minimum age requirement is around 21 years, with the maximum being 65 years. It depends on the lending institution.
  • Generally, both self-employed individuals and salaried persons are eligible for a Loan Against Property. The standard requirement is that the applicant should have a regular source of income.
  • Joint applications are permissible in a Loan Against Property. The lending institution can accept the income of the co-applicants for arriving at the eligibility.
  • The applicant should have unencumbered property in their name
  • The property can be residential, commercial, or industrial. Agricultural land is not acceptable as security for the loan.
  • Many banks stipulate that the property should either be vacant or self-occupied. Some of the banks do not consider a property that is let out on rent or lease to third parties.
  • Some lending institutions sanction loan against vacant residential plots
  • The margin on Loan Against Property can be 10% to 50% of the market value of the property

These are the general eligibility norms. It can differ from one bank to the other.

Loan Against Property - Advantages

  • It provides you with an opportunity to get a lump sum amount to cater to personal or business needs.
  • The Loan Against Property is cheaper when compared to a personal loan or an advance against the credit card.
  • It is useful when the requirements are high
  • The eligibility criteria for applying to a Loan Against Property are comfortable
  • One does not need an excellent credit rating to be eligible for a Loan Against Property
  • The Loan Against Property has an extended repayment tenure. Therefore, it is a convenient liability in many ways.

Loan Against Property - Eligibility Norms of the Top Banks and Lending Institutions

Following are the eligibility criteria for different Loan Against Property schemes offered by top lenders:

State Bank of India - Eligibility Criteria

State Bank of India offers three variants of Loan Against Property:

  • Loans Against Property
  • Loans Against Mortgage of Immovable Property
  • Rent Plus Scheme

The eligibility norms for all schemes are mentioned below:

A) Loans Against Property

  • Salaried employees and self-employed persons are eligible for a Loan Against Property
  • Income tax assesses, and NRIs are also eligible under the scheme
  • The NRI applicant should have a residential or commercial property in their name or the name of spouse/children/parents/siblings.
  • The minimum net monthly income should be 25,000 or 3 Lakhs per annum
  • The maximum age of the eldest borrower at the time of maturity of the loan should not be more than 70 years.
  • The minimum loan amount: 10 Lakhs
  • The maximum loan: 7.50 Crores depending on the property location
  • LTV Ratio: 65% for loans up to 1 Crore and 60% for loans above 1 Crore
  • EMI/NMI Ratio: Equated Monthly Instalment to Net Monthly Income Ratio

a) Annual Income more than 3 Lakhs and <= 5 lakhs: 50%

b) Annual Income > 5 Lakhs and <= 10 Lakhs: 55%

c) Annual Income > 10 Lakhs: 60%

B) Loans Against Mortgage of Immovable Property

  • Salaried employees, self-employed individuals who ate IT assesses and NRIs are eligible for LAP.
  • Maximum age limit: 70 years
  • The minimum income levels are 25,000 per month or 3 Lakhs per annum
  • The minimum loan amount is 10 Lakhs, whereas the maximum can go up to 5 Crores depending on the property location.

a) NCR, Mumbai, Chennai, Pune, Ahmedabad, Bengaluru, and Hyderabad: 5 Crores

b) At other BPR centres: 2 Crores

c) At Non-BPR centres: 1 Crore

d) Rural and semi-urban areas with population up to 1 Lakh: Nil

  • LTV Ratio for loans up to 1 Crore is 65% and loans above 1 Crore is 60%

C) Rent Plus Scheme - Loans Against Rent Receivables

  • Owners of residential or commercial property who have rented the same to MNCs, banks, and other corporate entities.
  • The maximum Loan Against Property amount is the lowest of the following:

a) 75% of the realisable value of the property

b) 75% of the net rent receivable for the residual lease/loan period

c) Maximum permissible amount in this scheme

  • The minimum loan eligible loan is 50,000
  • The maximum possible loan is 5 Crores for property in non-metro areas and 7.50 Crores for property in metro locations.
  • Minimum margin: 25%
ICICI Bank - Eligibility Criteria
  • Loan amount range: 10 Lakhs to 5 Crores
  • Minimum age of the Loan Against Property applicant should be 25 years
  • The maximum age of the borrower can be their retirement age or 65 years
  • Both salaried and self-employed persons are eligible for the Loan Against Property
  • The maximum tenure of the loan is 15 years
  • The maximum amount of loan is 70% of the value of the property
  • The LAP has a ceiling of 5 Crores
HDFC Bank - Eligibility Criteria
  • Salaried and self-employed individuals with a regular source of income are eligible
  • The maximum loan amount is 60% to 65% of the market value of the property
  • Loans available against both residential and commercial property
  • Rented properties are also acceptable as collateral
  • Loans available as Term loans or Dropline Overdraft
  • The maximum term is 15 years
Axis Bank - Eligibility Criteria
  • Salaried Individuals

a) In permanent service in Government department or a reputed company

b) Should be above 24 years when applying for the loan

c) The maximum age can be the age of superannuation

  •  Self-employed individuals - Non-professionals

a) Should file Income Tax returns

b) The minimum age is 24 years at the time of application, whereas the maximum is 65 years at the maturity of the loan.

  • Self-employed individuals - Professionals

a) Professionals include doctors, Chartered accountants, architects, and so on

b) Other eligibility norms are the same as that of self-employed non-professionals

Amount eligibility norms

  • 5 Lakhs
  • The maximum amount is 5 Crores
  • Margin: 40% to 55% of the value of the property, residential or commercial

Axis Bank also offers a Lease Rental Discounting facility

  • Funding is against commercial property alone
  • The loan amount is the lower of

a) 85% of the present value of future rentals

b) 50% of the property value

DHFL - Eligibility Criteria
  • Individuals and non-individuals are eligible for a Loan Against Property
  • Individuals can be salaried or self-employed persons
  • Non-individuals include proprietorships, partnership concerns, LLPs, private limited companies, and limited companies
Punjab National Bank - Eligibility Criteria
  • Employees of Central and State Government, schools, colleges, PSUs, and reputed corporates, and IT assesses are eligible for a Loan Against Property for meeting personal requirements.
  • Business entities maintaining a satisfactory track record of a minimum of three years (net profit in the immediately preceding year and cash profits during the last three years)
  • Salaried persons: Minimum net income of 25,000
  • Self-employed individuals: Minimum annual income of 3 Lakhs
  • Business enterprises: Net profit of 3 Lakhs and above
  • Quantum of loan

a) Personal needs: 1 Lakh to 25 Lakhs

b) Business requirements: 5 Lakhs to 5 Crores

Assessment of limit - to determine the eligibility of the loan amount

Lowest of the following parameters:

  • 75% of the realisable value of the property
  • Maximum of three times of Annual Gross Income/Gross Profit in the case of term loan
  • Maximum of four times of Annual Gross Income/Gross profit in the case of overdraft

The limit also depends on the maximum permissible deduction:

Salaried individuals and other IT assesses - Net Monthly Salary/Income Business enterprises - Annual Net profit after Tax Maximum Permissible deduction of NMS/I or ANPAT

50,000

5 Lakhs

50%

Above 50,000 and up to 1.25 Lakhs

Above 5 Lakhs and up to 15 Lakhs

60%

Above 1.25 Lakhs

Above 15 Lakhs

70%

HDBFS - Eligibility Criteria
  • Maximum loan up to 60% of the value of the property subject to a ceiling of 8 Crores
  • Loans available against lease rent receivables
  • Salaried and self-employed persons are eligible for a Loan Against Property
  • Property can be residential or commercial

Loan Against Property Eligibility - FAQs

What documents should one submit when applying for a Loan Against Property?

The documents include the following:

  • KYC documents for ID proof and address proof
  • Income documents such as salary slips, IT returns, financial statements, bank statements, and so on.
  • Property documents to determine the title

Why do banks stipulate a higher margin on Loan Against Property?

The Loan Against Property is not a housing loan where there is a creation of an asset. The Loan Against Property is a loan against an asset. The purpose of the Loan Against Property is to meet individual and business needs. Hence, the banks consider it as low-priority finance when compared to housing loans. Therefore, the margin is higher in comparison.

Why are personal loans expensive in comparison to Loan Against Property?

Personal loans are unsecured loans. Hence, they are expensive when compared to a secured loan like the Loan Against Property. However, the purpose of a personal loan and the Loan Against Property is similar.

What factors decide the eligibility for the Loan Against Property?

The following factors play a critical role:

  • The income of the borrower
  • The value of the property
  • The EMI amount

The income of the borrower and the EMI together should satisfy the net take-home pay norms.

Will I get IT benefits if I avail Loan Against Property for home repairs?

Proving that you have taken the Loan Against Property for home repairs can be challenging. You might have to preserve the documents to rebut any notice that you could receive from the IT department. Therefore, it is better to take a loan for home repairs and renovation. The rate of interest benefit will also be available to you. At the same time, you can claim IT concessions without any problems.

Can I apply for the Loan Against Property in joint names?

Yes, you can apply for the Loan Against Property in joint names. It can help you to enhance the overall eligibility amount. However, the co-borrower should be an eligible co-applicant.

Who can be an eligible co-applicant?

The immediate family members and co-owners of the property can be eligible co-applicants.

Why should NRIs apply for the Loan Against Property along with a resident relative?

The NRI will not be available every time the bank wants to contact them. Therefore, it is advisable to have a resident relative to join as co-borrower.

Can I apply for the loan against agricultural land?

No, banks do not accept agricultural land as collateral for any loan not connected with agricultural activities. You can apply for a loan against residential or commercial property.

Can I apply for the loan against a vacant residential plot?

Yes, some banks offer loan against vacant residential plots, but the margin is higher at nearly 50%.

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