Lack of sufficient funds leads us to borrow money and while doing so, the first thing a borrower worries about is the repayment. One good way to lessen the burden of EMIs is opting for secured loans instead of unsecured ones. In the former, something valuable is put on the line and it is called collateral in banking parlance. This collateral serves as a guarantee and reduces the element of risk for the lender. The presence of a collateral, which can be used by the lender to recover the money in case of a default, helps the borrower in getting him favorable terms from the lender. Loan Against Property (LAP), as the name suggests, is a loan given against the mortgage of property and is a popular kind of secured loan. However, owning a property is not enough; there are some other eligibility criteria too. Here are a few suggestions to ace your game and get your LAP in no time.
Advantages of taking Loan Against Property
Firstly, it unlocks the assets potential to generate funds. Through LAP, you can get a loan up to 70% of the property’s market value as judged by the lender. And this can be done while continuing to retain the ownership as well.
A double treat, indeed! Now, as mentioned above, the presence of collateral leads to better interest rates, which are comparably much lesser than personal or business loans.
Since LAP offers long repayment tenure, EMIs don’t pose much of a burden. After the full repayment, you will also get to see your credit score improve a great deal.
Also, there is no restriction on the purpose of these loans. It can be used to expand business, fund education, meet marriage expenses, or medical emergencies among other reasons.
Factors that improve your eligibility for LAP
Regular Income Flow:
A regular flow of income is what lenders look for when lending money via LAP. Even if the value of the property is quite high, the borrower may not get the loan if he/she does not have a fixed and steady source of income. Also, switching jobs may be good for hikes but lenders assess the applicant’s ability to consistently pay EMIs through his/her stability at one company.
Good Credit History:
A high credit score is a must for any kind of loan as it shows your creditworthiness. If your credit history is good, it means that you have paid your previous loans on time and keep a decent balance in your account. It's an indicator that you are well-placed to repay the loan before deadline and lenders will definitely check it to evaluate the applicant’s eligibility.
Adequate Income Tax Returns being filed is a statement of proof that the applicant has a steady flow of income. Especially the self-employed individuals need to submit ITRs for the last three years. In the absence of ITRs, the chances of loan approval get diminished. So, pay your tax returns and keep the documents ready.
Having a Co-applicant:
If the property is owned by more than one person, all the owners need to be co-applicants for the loan. It also helps if one of the applicants’ credit history is not satisfactory. Having co-applicants improves the chances of loan approval. However, remember that all the co-applicants must co-sign the loan documents and provide information sought by lenders.
Proper Property Documentation:
All the documents related to the property must be in place and accurate. Any discrepancies will lead to loan rejection. One generally needs to furnish title deeds, approvals from authorities, house blueprint, etc. as needed by the lender to ensure that the property has a clear title and has no legal issues attached to it.
Sometimes having property insurance works wonders as it diminishes the risk of both the borrower and lender. In case of unfortunate events, the insurance covers the loan repayment, which takes away a huge burden from the applicant’s shoulder. So, experts suggest that one should go for mortgage insurance as a precautionary measure to protect financial interests as well as save the lender from facing an NPA (non-performing asset) issue.
The age and condition of your property is a crucial factor for the loan to be approved. If your house or apartment is quite old or is in a dilapidated condition, lenders won't sanction the loan. The younger your property is, more will be its market value. So, don’t forget to shell out a few bucks on the renovation before applying for a loan.
If you want lower EMIs, you need to opt for longer tenures. People with low incomes will get the loan only if they opt for longer tenures as lenders are unsure if the borrower can consistently pay high EMIs. Though the interest amount gets slightly higher in longer terms, lower EMIs are more comfortable to pay. Choosing longer tenures also enhances the eligibility of the LAP as well as the loan amount. Lenders also consider the age of the applicant to finalize the tenure. Youngsters will get a longer tenure, but a person approaching retirement age, will not be able to enjoy that privilege. The latter’s tenure must end before the retirement age.
Your banking practices also count for LAP approvals. If you have been approaching financial institutions for loans and have previously been rejected quite a few times, it would have done great damage to your credit history. That hampers your chances of getting a loan approval. So, apply for loans only when you genuinely need them. If you can manage without a loan, then don’t try to fix what’s not broken.
If you are in a phase of life where you can’t stop worrying about your dwindling finances but fortunately own a property, you can use it to fund your requirements. LAP serves as one of the best ways to help you wade through troubled waters. However, please note that though LAP is comparatively more pocket-friendly, you can lose your property if you default on the EMIs. When you avail a LAP, you have to submit your property documents to the lender and if by chance, you are not able to pay off your loan, the lender has the rights to sell your property to recover the lent amount. Simply put, be a disciplined borrower to eliminate these apprehensions and enjoy the best benefit of LAP while still being the property owner.