Purchasing property depending upon financing is a dream come true for an initial buyer. A property that you can create as your own home, a property that provides you complete liberty from altering rented houses each year. For the past many years, there was a gradual decline in the price appreciation of the real estate market. Investing in purchasing your dream property has gone out of reach for most people.
A loan against the property is authorized against immovable assets like residential or commercial space that are owned by the borrower. The concerned lending institutions grant loans against property for a certain percentage of mortgaged property’s value.
Owing to security concerns, lenders may not grant a Mortgage loan with a “Loan to Value” of 100%. However, you could avail of 90% of the overall property’s current market value.
What Is Meant By Loan to Value (LTV)?
Loan to Value (LTV) is defined as the total amount of loan you could borrow against the existing market value of the mortgage. Loan to Value implies overall risk related to the loan.
- Whenever Loan to Value is high, risk will be more. Therefore, a loan is granted with a higher interest rate thereby making it expensive.
- On the contrary, when the Loan to Value is low, the possibilities of approving the Loan against property are high. Even the interest rate is lower.
The technique implemented to determine Loan to Value is the Mortgage amount/appraised value of a property.
- Bank statement for the previous six months to be submitted as income proof.
- Sufficient documents that support ownership of the property to be mortgaged.
- If in case it is a private concern or a partnership company that is applying for a loan, then relevant documents related to the partnership agreement are mandatory.
- Identity proof of each partner is required in the case of a partnership firm.
Relevant Documents Required for Salaried Individuals
- ID proof and address as discussed above
- Bank statement for the last three months
- You are required to submit Income tax returns (ITR) for the last two years along with the latest salary slips as proof of income.
- Sufficient documents related to property ownership.
As soon as you comply with the above-mentioned eligibility, documents should be ready to ensure a hassle-free approval process. Fill up the relevant online form and submit the documents required for the loan against the property and avail of the amount instantly.
Which are the Elements that would Affect the Loan Against the Property Tenure?
Loan amount:-A lump sum loan amount would extend the tenure to avert the possibilities of default payment and affordable EMIs.
EMIs: Choosing higher EMI’s would extend the tenure and minimize the cost of the loan. On the other hand, a short tenure would have adverse effects. Age: Borrowing at an early age might have the possibility of availing a higher tenure since they hold continuous employment duration. As a result, lenders would reject loans from elderly applicants. Age requirements for a salaried professional to avail loan are between 25-70 and 33 to 58 for self-employed individuals. The maximum tenure offered by the lender for the loan against the property is about twenty years. But, final tenure is decided based on the below-mentioned:-
Loan application: Fill in the application form by furnishing relevant details
Processing of application: Now the lender would process the application to make sure that you are eligible to avail of the loan.
Documentation Process: This stage involves the submission of supporting documents for sanctioning a loan against property.
Granting Loan: Now you will be provided a sanction letter that confirms the approval of the loan.
Inspection of Property: Concerned representatives would examine the property in detail to carry out the mortgage loan procedure.
Disbursement of Loan: The final step involves crediting the loan amount in your bank account.
Is It Possible to Avail Tax Benefits on Loan Against Property?
A loan against property is granted as against the property in the form of collateral security with the concerned lender. It is ultimately the lender who determines the loan amount based on the property value. Normally, financial institutions offer a majority of the property value as the loan amount.
Section 37 (1):
Section 37 (1) of the Income Tax Act states that you could avail tax benefit based on the interest paid for a Loan against property.
Under this section, you could obtain a loan against property tax benefits based on the interest paid on the loan if funds are utilized for financing a new property.
Applying for a Loan to Repair or Renovate a Property
A budget-conscious individual who has the habit of saving money would help them in getting their house renovated. The remaining balance could be utilized to cover the down payment and obtain another loan to repair or renovate a property. The majority of the banks and financial institutions have a scheme to fulfill the above-mentioned task. They would grant funds based on an individual’s financial stability and repayment capacity.
Concept of Part-funding through Personal Loan
There are also options to avail personal loans for part-funding property purchases. However, the amount of loan is based on the credit score, current credit cards/loan, and repayment capacity of a person. A personal loan is quite expensive when compared to a home loan and the chances of obtaining it are remote.
Significance of Credit Score is Acquiring a Property
The lender has the right to seize property and auction to retrieve the money if he/she fails to pay a home loan for 6-7 months. Credit score plays a pivotal role to access the loan at a low rate. At present, lenders provide a special rate to those people who have a CIBIL score ranging from 750-800.
Therefore, the above-mentioned criteria should be taken into consideration before applying for a loan against the property. Individuals must have a sound financial background along with repayment capacity to cover the loan amount within a stipulated period.