Introduction
If you have a property registered in your name and without encumbrances, you can leverage this property and get a loan. In technical parlance it is called loan against property (LAP). Most banks and even NBFCs offer this facility, as long as you have the loan against property eligibility. After all, it is back-to-back funding, so the lending risk is substantially reduced for the lender. Here we look at what is loan against property and the process flow on how to get loan against property.
What Do We Understand By Loan Against Property (LAP)?
Loan against property or LAP is a secured loan. At the outset, one must differentiate between a LAP and a home loan. A home loan is a loan to acquire a property or residential home. Home loan gives you benefits under Section 24 and Section 80C of the Income Tax Act. On the other hand, the LAP is only applicable for property that you already own, and where the property is fully registered in your name.
The bank/NBFC will fund around 65% to 75% of the value on property and there are no restrictions on the end use of funds. You can use these funds for business or for family requirements. However, the loan against property does not give any tax benefits like Section 24 or Section 80C of the Income Tax Act.
Loan Against Property eligibility is based on the market value of the property, clean titles, your credit standing (CIBIL score) etc. LAP is normally available at a more competitive rate compared to unsecured loans like personal loans or consumer loans.
5 Steps To Avail Loan Against Property (LAP)
If you have an owned property with no encumbrances, here is how to get loan against property. There are 5 key steps to keep in mind:
- Even before you apply for loan against property, there is an eligibility test you can run online. Most of the LAP offering banks give this calculator free on their websites. There are some basic questions like location of the property, type of ownership, clean title, link documents, your CIBIL score etc. While this is indicative, you can use these eligibility tests to get an approximate idea. However, it is best you talk to your banker when you already have an existing relationship.
- It may seem rather strange, but it is not just the lender that decides your eligibility, but even you can decide the eligibility of the lender. There are various LAP products available in the market, so ideally you can do a quick comparison before taking a final call. Compare on rates, LTV funded, flexible repayment options, processing charges, banking relationship, overdraft facility etc.
- Ensure that you have all the document in place in originals available with you. For the LAP, your own KYC is required like proof of income, proof of identity, proof of residence, bank statement, net worth statement etc. Then there are the property-linked documents like ownership papers, link documents, no-lien certificate etc. Being prepared with all documents can speed up the loan sanction process.
- The next step is making the actual loan application. It is a fairly elaborate process. You can do it online or even offline at the branch. If you are leveraging your existing banking relationship, it is best you visit the branch. The lender will need about one-week time to review all the documents and check veracity. Once your personal eligibility is established, comes the more elaborate process of the property document review.
- The last step before sanctioning the loan is the property valuation. Unlike equities, valuing property is a lot more complex. The bank has its own team of property value assessors who give the opinion. They review aspects like the market value of the property, rent earning capacity, legal disputes if any, government restrictions like no-fly-zone, coastal regulations etc. Based on this assessment, the bank-appointed assessor arrives at an indicative valuation of the property. The bank then makes its own internal adjustments and sanctions between 65% to 85% of the value of the property as loan. The entire sanction and disbursement process takes about 15 days, including the property title verification and valuation.
LAST WORD ON LOAN AGAINST PROPERTY (LAP)
The sanction letter given by the bank is not the final word and, depending on your relationship with the bank, you can negotiate terms for a higher loan against property eligibility. You can negotiate for better terms on rate of interest, bullet repayment and the LTV; and these are often subject to negotiation. This is about how to get loan against property. Once the loan is sanctioned and disbursed, you must ensure timely servicing of the loan to maintain a good credit score at your end. Remember, you need to be extra cautious as your property is mortgaged with the bank too.