If you are faced with the challenge of finances without any reserve to fall back on, then you will be left with no option than to seek help outside your domain. This is where Loan Against Property comes into the picture. Find below all the details that you need to know about this loan.
You might want to know why you should risk putting up your home as collateral for a loan while you can take other means of getting the loan; the interest rates charged on other loans as against what obtains through Loan Against Property is one of the major reasons why people take to this form of a loan agreement. With a cheaper interest rate and the fact that you can put up the house whether you are occupying it or it is under a lease agreement makes this option viable to many borrowers.
The Property That Qualifies For LAP
We should answer the question on the real estate property that qualifies for a LAP. If you can show proof of a house, commercial property or a piece of landed property; then you are good to go in applying for a LAP. Where the ownership of the property extends beyond a single individual, then all the stakeholders are expected to jointly apply for the loan.
Evaluation Of The Property
When an application is received for LAP, an appraisal of the property will be undertaken by the lending institution through the representative that will be sent to see things for themselves. Only a specific amount of the property’s market value will be sanctioned, it usually ranges from between 40-60%. Before they arrive at a final figure on the property, the age of the property, as well as the overall condition of it, are taken into account before the release of the final figure. If you want to avoid failure at this stage, then the property should be free from any previous lien and such property should be owned completely by the applicant or applicants if it is joint ownership.
The criteria for eligibility for LAP loan varies from one bank to the other. Generally, the following are the considerations that are common to most of the banks when they want to consider the loan: your repayment track record (for credit cards, previous loans and the rest); your income, debts, savings as well as the current value of the property in question.
What factors Add Up To The Loan Amount
Aside from the considerations given above, the employment status of the lender is also a serious factor. Every bank wants to be sure that the borrow has what it takes to meet up with the repayment schedule without default. If you have proof of a steady income, then you are good to go. Age is also a factor; those that have age on their side will be given easy consideration backed up with proof of life insurance. Above all, with a decent credit score, getting the nod of approval for the loan will be easy.
Tenure, Interest rates, EMIs
It might interest you that the repayment period for LAP loan is between 7-15 years. As for the interest rates, this is where you have to survey what obtains based on individual banks if you wanted a fair deal. The interests vary from one bank to the other and you can expect something within the region of 9-15% per annum depending on the vendor of your choice. The EMI amount can be calculated based on your loan repayment schedule.
You are going to have no issues with the document requirement because it is general to virtually all the lending institutions with minor variations. However, changes do come into the requirements from time to time. What you saw last in terms of documents required might change in between; so it is best to confirm at the point of application.
Loan-to-value (LTV) ratio
The LTV differs from one lending house to the other. Therefore, survey the ratio and go for the one that is most economical among the offers on the ground. Private banks can offer up to 75% of the property value while Public Banks do offer up to 65%. Make sure you get a good deal among the options on offer.
It should be noted that LAP will not provide any tax benefits to the borrower and the interest on the loan begins immediately after the disbursement of the loan. The processing of the loan requires a few checks by the lending house and the duration of this before final approval can be likened to what obtains in a home loan. It is one of the best ways to raise money in times when the real estate market is bullish.