A loan against property (LAP) gets you capital based on the value of your property. It is available for both salaried and self-employed persons and against commercial as well as residential property. All this and, you don’t have to sell your property to raise the capital. It’s all yours to keep if you repay the loan taken.
Steps involved in the application process are:
- Application
- Processing
- Documentation
- Sanctioning of the loan
- Valuation and legal check
- Disbursement
Just as in case of every loan, the loan application begins the whole process. You will need to fill in a loan application with details, personal and professional, loan requirement, details of the property intended for mortgage etc. Make sure the details are filled in accurately.
Next comes the loan processing stage, the stage at which the loan process gains actual momentum. This could start with a personal discussion followed by the bank’s field investigation.
Along with the application form and the credit documents, you may have to pay a processing fee to the bank, which could be 1-2 per cent of the intended loan.
An upfront fee could be collected to maintain your loan account records, sending income tax certificates every year, maintaining post-dated cheques, etc.
When you go for a personal discussion, carry all the original documents pertaining to the information provided on the application form. Do not submit any forged documents or lie about the financial details requested.
The bank’s field investigation will follow; the bank might outsource this task to third-party verification agents.
Detailed list of documents required
Proof of income: Copies of last three years income tax returns (along with copies of Computation of Income/Annual accounts, if any), Form 16/Form 16A, last three months salary slips, copies of the last 6 months statements of all the active bank accounts that reflect your salary/business income details etc.
Age proof: Copy of the school leaving certificate/driver’s licence/passport/ration card/PAN card/voter identity card etc.
Address proof: Utilities bills, such as phone and electricity bills, need to be provided to prove that you are actually staying at your current address.
Identification proof: Documents with your photograph.
Sometimes, one document, if it contains a photograph, the current residential address, and the correct age can be the proof for all three mentioned above.
Employment details: If your company is not well-known, a short summary about the nature of the company, its business lines, its main customers, its competitors, number of offices, number of employees, turnover, profit, etc. may be needed. Usually, the company profile that is available on the standard website of the company is enough.
Property papers: The bank may require title deeds and other documents relevant totheproperty. This will be important as the loan can be taken only against free-hold property. Also, it can be only about 40-60 per cent of the cost of property. It is important for the bank to establish the value of the property and its legal status before the offer can be considered.
Meanwhile, bank verifies your personal and employment details. The bank also does a valuation of the property.
Loan sanction is the next process in the series. At this stage, the bank has checked your financial credentials based on criteria such as your income, age, qualifications, experience, employer, nature of business (if self employed), etc. They work out the maximum loan eligibility, and an indicative loan amount that the bank is willing to offer.
Offer letter/Sanction letter: The bank now sends you an offer letter with details relevant to the loan. If these terms and conditions are acceptable to you, you can sign an acceptance copy.
Valuation and legal check on property and papers is the next stage where the focus of the bank will shift to the property that you intend to mortgage. Make sure the property papers and the relevant NOCs are in place. The bank’s lawyer will check the property papers for their legality. The bank may also send an expert to visit the property. This expert could be a bank employee or an associate with a realty firm.
Once the bank has ascertained all that it needs to be assured of you as a client, the property as a security, and your repayment capacity, it will disburse the loan. The bank does not enquire about the purpose for which you usethe loan. Though, it stipulates that the loan should not be utilized in speculative activities.
If you can spend a little more time in processing and documentation, a cheaper loan than Personal Loan (PL) is a Loan against Property (LAP).
LAP is a personal loan given by mortgaging your house property. The loan is given as a certain percentage of the property’s market value, usually around 40-60 per cent. LAP interest rates are cheaper by 3- 4 per cent compared to personal loan rates.
| Loan against Property | Personal loan |
| The individual takes the loan by mortgaging the house property. | An individual can take a personal loan for personal usage without any security or guarantor |
| One of the cheapest retail loans after home loans. | Higher interest rates compared to LAP |
| Maximum loan eligibility is determined primarily by the value of the property and income. | Maximum loan eligibility is determined primarily by an individual’s income. |
| Maximum loan tenure for LAP is up to 15 years (180 months) | Maximum loan tenure for personal loan is up to 5 years (60 months) |
| Secured loan | Unsecured loan |
What documents are required for applying for a loan against property?
Most banks and financial institutions typically require the following documents. However, this list may vary from bank to bank.
| Salaried Customers | Self Employed Professionals | Self Employed Businessman |
| Application form with photograph | Application form with photograph | Application form with photograph |
| Identity and Residence Proof | Identity and Residence Proof | Identity and Residence Proof |
| Latest Salary-slips | Education Qualifications Certificate and Proof of business existence | Education Qualifications Certificate and Proof of business existence |
| Form 16 | Last 3 years Income Tax returns (self and business) Last 3 years Profit /Loss and Balance Sheet | Business profile Last 3 years Profit /Loss and Balance Sheet Last 3 years Income Tax returns (self and business) |
| Last 6 months bank statements | Last 6 months bank statements | Last 6 months bank statements (self and business) |
| Processing fee cheque | Processing fee cheque | Processing fee cheque |