What are the Essentials of Loan Against Property?

The Indian financial services sector is one of the most dynamic and is famous for fulfilling the aspirations of a young India. People take loans to fulfil the many dreams of their lives. Whether you want to buy a new house, set-up a new business, buy a motor vehicle, sponsor your dream wedding, fund your or your children's higher education, or expand your business, a loan helps fulfil your dreams. Out of all loans offered by Indian non-banking financial companies, a loan against property is the most popular.

The best benefit of a loan against property is that it helps you to monetise your immovable property and use the money for funding your aspirations. However, to extract the maximum benefit out of a loan against property, you must remember to repay the amount on time; else, the lender may liquidate your asset to get their principal amount back. 

Read this article to know the five essential things that you should keep in mind to realise the full potential of a loan against property.

1. Eligibility Criteria

First thing first, the most important eligibility criteria for applying for a loan against property is that you have to be the owner or co-owner of a residential or commercial property you wish to mortgage with the lender. 

For Salaried Professionals

1. Your age should be between 21 and 60.
2. You should be an Indian citizen.
3. Your CIBIL score should be above 700.
4. You should have ITR for two years, a 6-months' bank statement and 6-months' salary slips.
5. You should have ownership documents of the property you wish to mortgage.

For Self-Employed Professionals

1. Your age should be between 25 and 65.
2. You should be an Indian citizen.
3. Your CIBIL score should be above 700.
4. You should have ITR for two years, a 6-months' bank statement, and 2-years' income and profit statement audited by a Chartered Accountant.
5. You should have ownership documents of the property you wish to mortgage.

2. The Uses of a Mortgage Loan

Since eligibility criteria for a loan against property is simple, you can avail it if you require instant cash for funding urgent requirements. Although a mortgage loan is equally popular among both salaried and self-employed professionals, it is business owners who reap the maximum benefits out of a loan against property, because of its instant approval process, longer repayment tenure, and higher loan amount.  

Other than business requirements, a loan against property is an excellent medium for funding higher education, buying another property, buying motor vehicles, renovating a house, repay a debt or any other purpose for which you wish to use the funds.

3. Documentation

You need to keep the following documents ready to apply for a loan against property.

1. Application form
2. Photograph
3. Identity Proof
4. Address Proof
5. Age proof
6. 6-months bank statement or salary slips
7. Form 16
8. 3 -years Income Tax Returns
9. Cheque of Processing Fee
10. Property ownership documents
11. A 2-years' income statement, attested  by a Chartered Accountant (for self-employed professionals

4. Interest Rates

Loan against property interest rate is of two types - fixed and floating. In a fixed interest rate, the amount you pay remains the same throughout the loan tenure. In the case of a floating rate, the EMI depends on the prevailing market interest rates.

Most reputed lenders offer an interest rate in the range of 9% and 24%. It depends on multiple factors like the stability of income, monthly liabilities, LAP product type, property's current market value, and CIBIL score. 

5. Tax Benefits

A loan against property is an excellent financial instrument to save taxes. Under Section 37(1) of the Income Tax Act, you can claim tax deductions on the interest and other fees, if you are using the loan for business purposes. If, however, you are a salaried professional, then you may use the provisions of Section 24(B) of the Income Tax Act to claim tax benefits of up to Rs. 2 lakh on the interest paid.

Before applying for tax benefits, make sure to keep your documents in place.

Conclusion

A loan against property is the best way to fulfil all your aspirations and dreams. Compare the features of several lenders and choose a lender who respects your values by offering you competitive interest rates. Also loan against property eligibility criteria and minimal documentation, and transparent digital processing of loans.