Are you eligible for a loan against property?

 

Whenever we are faced with an immediate need for finance, we approach lenders like banks and NBFC, to get the necessary financial assistance. However, lenders require sufficient collateral or security to extend the financial assistance, especially if the loan amount needed is quite higher and the tenure of the loan is also quite long. 

Many times, applicants do not get sanctioned for loans due to a lack of sufficient collateral. In such cases, you can mortgage your existing property with the banks or NBFCs and get the required loan. This type of loan is known as a loan against property. It is one of the most common types of loan extended by lenders in case of high loan amount requirements or if there is no alternate collateral or security that can be provided. 

Lenders provide the loan against your property but the title or the ownership of the property is retained by you. Usually, lenders provide anywhere between 40% to 60% of the value of the property as the loan amount. However, the actual loan amount will be different in each case and will depend on several factors. In this article, we look at the eligibility factors that impact a loan against property. 

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Eligibility Factors for a Loan Against Property

Lenders have a detailed set of eligibility parameters that are considered by them while sanctioning an application for a loan against property. Some of these factors are detailed below. 

1. Age of the applicant

The age of the applicant is among the first points of consideration for a loan against property. If you are closer to retirement or already retired, you may not be preferred by some lenders for the loan against property as against an applicant who is relatively younger. This is on account of the higher risk of default in older applicants as compared to the younger applicants. 

This high risk can be on account of the uncertainty of life and income opportunity. Some lenders may provide loans to older applicants who have retired or are closer to retirement, however, the loan amount may be lower and the interest rate may be higher.

2. Credit history of the applicant

Like any other loan, a loan against property also requires you to have a good credit score and a favourable repayment history to back your repayment capacity. Most lenders require the applicants to have a minimum credit score of 750 to be eligible for a loan against property. 

If your credit score is lower than 750 and anywhere up to 550 or 600, some lenders may still provide the loan against property. However, the loan amount may be lower and the rate of interest can be higher depending on the guidelines of the lender. 

3. Income of the applicant

Your income is also an important consideration that is reviewed by the lenders. Lenders prefer applicants having a regular source of income and a sufficient repayment capacity to safeguard their interest and avoid or reduce the risk of default or delays in the repayment of the loan. 

4. Employment status of the applicant

Another important factor is your employment status in determining eligibility for a loan against property. If the employment is not steady, then it does not warrant the necessary confidence in the lenders that the loan will be repaid in full. Hence, having steady employment or business is one of the key factors in determining the eligibility for a loan against property.  

5. Correct documentation of the property

The documentation of the property to be mortgaged has to be complete and in order. If there are any discrepancies in the documentation, the loan may not be approved. The property needs to have a clear title without any disputed claims as well as all taxes paid up to date, to begin with. 

6. Insurance of the property

Property insurance is not quite common in our country and many are not even aware of getting insurance for their property which is the biggest asset they have. Having insurance for the property increases the chances of getting the loan against the property as it reduces the risk of the borrower and the lender. 

7. Tenure of loan

The tenure of the loan is also an important factor to be considered. A loan against a property usually involves high loan value and having a longer tenure for such loans reduces the risk of default and delays as the EMI amount becomes manageable. 

8. Inadequate or incorrect ITRs

While the income of the applicants is reviewed for this loan, the lenders also review the past Income Tax Returns (ITRs), especially in the case of self-employed applicants. Lenders usually require your ITRs for the past 3 years which have to be duly filed and without any disputes.  

9. Past record of rejection of loans

Among the above-mentioned eligibility parameters, any past record of rejection of a loan application can be detrimental to your current loan application. Rejection of loan application is reflected on your credit report and it shows you to be a high-risk applicant. It is therefore advisable to avoid any chances of rejection of loan by applying only when in dire need of finance and ensuring that all the eligibility parameters are met. 

Final Thoughts 

Loan against property is one of the common types of loan products offered by most banks and NBFCs. It is one of the easiest ways to get the necessary finance promptly. However, it is important to ensure that the loan is repaid on time without any delays so as to avoid any unfavorable action or claim on your property. 

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