An unexpected financial emergency can often strike without warning, leaving our savings inadequate to cover the expenses. This is where a loan against property (LAP) can come to the rescue. An LAP allows you to leverage your residential or commercial property / plot to obtain financing for any purpose, including unforeseen medical expenses, your children’s higher education, or setting up a business.
However, the LAP application process involves thorough documentation and diligent follow-up. Rejections are also common, especially if the application is made without thorough preparation. This is why planning your LAP application systematically is crucial. The following key tips and strategies can help ensure that your LAP application sails through successfully.
1. Assess Your Property’s Value and Eligibility
Banks typically offer loans up to 60-80% of the property’s value, known as the loan-to-value (LTV) ratio. Thus, before initiating the loan application, evaluate your property’s current market value accurately. This will help you estimate the maximum loan you can borrow and plan your finances accordingly.
2. Understand Eligibility Criteria
Each lender has specificeligibility criteria for loan against property applicants. Typically, the eligibility criteria are as follows:
For salaried individuals:
● Individuals employed permanently in a Public Sector Undertaking, Government undertaking, Multi-National Company, Listed public limited company, or well-known private limited company can apply.
● The minimum age at the time of loan application should be 21 years, and the maximum age at the time of loan maturity should be lower than the retirement age.
For self-employed professionals/non-professionals:
● Doctors, Chartered Accountants, Cost Accountants, Architects, Engineers, Company Secretaries, and CFAs can apply.
● Any individual filing Income Tax returns (ITR) can apply.
● The minimum age at the time of loan application should be 21 years, and the maximum age at loan maturity should not be more than 70 years.
Therefore, before you begin the loan application process, check with the lender to see if you meet their loan against property eligibilitycriteria. Doing so will help prevent your loan application from being rejected.
3. Select the Suitable Tenure
An important aspect to consider when applying for a loan against property is tenure. Generally, banks offer a tenure of up to 20 years for such loans. It’s advisable to select a tenure that allows you to repay the loan comfortably without straining your finances. However, remember that the longer the tenure, the lower the EMI but higher the interest paid; likewise, a shorter tenure entails higher EMIs but less interest paid over time. Thus, weigh your financial situation carefully before deciding on the loan tenure.
4. Gather Required Documents
Banks require specific documents from individuals and businesses when applying for a loan against property. For instance, individual applicants must submit:
● Proof of identity, address, and signature
● Recent salary-related documents such as Form 16/ITR copy/Appointment letter and the latest 3 months’ salary slips
● Bank statements from your main account for the last 6 months (CA/SA/CC/OD)
● Copies of property documents for the property being pledged
If you are applying as a business entity, you’ll need to provide the latest 2 years’ financial statements with full schedules and audit reports (Form 3CD & 3CB), along with other documents.
To make the verification process faster and smoother, make sure you know exactly what documents are required and gather them beforehand.
5. Maintain a Good Credit Score
Your credit score is a key factor that banks consider when determining the maximum loan amount you can qualify for. A higher credit score indicates you are creditworthy and likely to repay your debt on time, ultimately helping you secure a larger loan amount. To build a strong credit score, make on-time payments, reduce outstanding debt, and avoid excessive credit utilisation. A good credit score also helps you secure more favourable loan against property interest rates.
6. Fill out Your Application Form Correctly
Many individuals make mistakes while filling out the application form, leading to loan rejection. To avoid this, carefully fill out all required fields and sections for accurate submission. Provide complete information and double-check to avoid errors that could delay processing. Include all necessary documents, from identity proof to property papers.
Final Words
A loan against propertyis an excellent way to access funds without liquidating your savings. However, to ensure quick loan approval, it is important to take some key steps. Before applying, ensure you meet the bank eligibility criteria, have all required documentation ready, and maintain a strong credit score. These preparatory steps will reduce the likelihood of rejection and expedite the application process. With proper preparation, you can streamline the loan against property application and get approved for the funding you need with relative ease.