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Home Loan

Loan Against Property Explained

Summary: Learn about what is loan against property and the key differences between LAP and home loans to choose the best that suits the preference.

08 Mar 2022 by Team FinFIRST

loan against property eligibility

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Your quick guide to understanding LAP and Home Loans better

As the name implies, a loan against property (LAP) is exactly that! A loan given or disbursed against the mortgage of your property. This loan is given at a certain percentage of the property's market value, usually around 40% to 60%, which is what immediately differentiates it from a Home Loan.

Suppose a businessman, wishes to avail a loan against his Mumbai-home to repay a debt, fund new expenses, raise capital or cater to any emergency financial demands, he can avail a Loan against Property.

This type of a loan belongs to the Secured Loan category, where a borrower gives a guarantee by using his property as security.

There are 2 primary reasons why individuals opt for a Loan Against Property (LAP):

1. Low interest, lower EMIs!

Guaranteed lower interest rates, with lower to no prepayment charges:

2. Flexible and easy

While these loans are easier to get eligible for, the tenures offered are long and flexible. With a 100% digitized process on LAP, it’s as simple as it gets.

READ MORE

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Let look at the 4 key differences between a Home Loan and a LAP:

HOME LOAN	LAP
When do you apply for it?	When do you apply for it?
You can apply for a Home Loan when your new home is under construction or you are seeking aid in the process of purchasing of a new house	You can apply for LAP when you wish to seek funding against a Collateral, like a commercial or residential property for personal or business requirements
What is the loan amount based on?	What is the loan amount based on?
An evaluation of 85% - 90% of the house, based on market value	An evaluation of 65%-70% of the market value of your property. LAP in the case of commercial property completely varies from LAP against residential properties.
Interest rates:	Interest rates:
Range between 6.75% - 10%, depending on your loan amount and the bank of your choice	Ranging between 7.35% - 10.5% depending on your loan amount and the bank of your choice

It is important to note here that some banks may also choose to lend against industrial property in some areas. Banks can either lend against self-occupied property or rented out property or even vacant property.

Sounds too good to be true? Hold your horses! Before you start applying, let’s take a quick look at what is the eligibility criteria to get a Loan Against Property.

Under all normal circumstances, the following factors are taken into consideration, while arriving at eligibility criteria for LAP:

Income of the applicant
Age of the applicant
Property Valuation of the applicant’s residential or commercial property
Existing Liabilities (if any)
Current work experience of the applicant, work history and credit history to establish credit-worthiness
Adherence to 100% submission of required financial documents

Let’s now take a look at the documents categorized under Salaried & Self-employed individuals, as listed below

For Salaried Applicants:

Application form with photograph
Identity and Address Proof
Latest Salary Slips
Form 16
Bank Statements (Last 6 months)
Processing fee cheque

For Self-Employed Applicants:

Application form with photograph
Identity and Address Proof
Proof of business existence & Education Qualifications.
Last 3 years' ITR
Last 3 years' P&L and Balance Sheet

To continue reading, visit this detailed section on LAP. It’s a guarantee: All your questions around LAP will be answered in a giffy!

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Metra Trust or its affiliates to any licensing or registration requirements. Metra Trust shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.

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