Loan Against Property

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Loan Against Property

Loan against Property is a Mortgage loan provided by banks and financial institutions for personal as well as business purposes. A Loan against Property can be availed for a variety of purposes ranging from home renovation to purchase of machinery as well as to meet the shortfall of working capital. It is a safe proposition for the banks because they have collateral of the property as support for the finance they provide.Salaried people opt for mortgage loans to cater to expenses like the educational needs of their children, medical expenses, home renovation, and so on. Business enterprises prefer the Loan against Property as collateral towards Business Loans and for procuring working capital requirements.
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Type of Loan Against Property

  • Business Expansion Loans – Business entities can avail this facility for acquiring new machinery, purchase of plant, meeting working capital requirements, and invest in new technology or business. The lending banks require collateral in the form of property, residential, commercial, or industrial. Depending on the nature of the property available as collateral, the lending banks calculate the loan eligibility. For commercial properties, the LTV is around 55- 65%. In the case of industrial properties, the LTV reduces to 40-55% whereas the LTV in the case of residential property is in the range of 65-70%.
  • Working Capital Overdraft Facility – Banks sanction overdraft facilities against the property for meeting the day-to-day working capital requirements. Under such circumstances, the property is accepted as collateral. Lending banks estimate the amount of finance required based on the following figures:
    1. Property value and nature of the property
    2. Actual working capital requirement calculated as per the internal policies of the bank, usually the Projected Annual Turnover method.
  • Personal Expenses – Individuals can also avail Loan against the Property for personal expenses such as medical expenses, educational expenses, marriages, travel, as well as for purchasing consumer durables
  • Home Renovation – Usually, people do not avail this loan for renovating homes as there are separate schemes available at comparatively lower rates of interest. However, there can be circumstances when the borrower might have to resort to avail a Loan against Property for home renovation
  • Lease Rental Discounting – Some banks offer loans against the future rent receivables, especially in metropolitan and urban areas. One should note that the property that fetches the rent should also be mortgaged in favour of the bank. Banks usually finance in the range of 75% to 90% of the future lease/rent receivables. The tenure of such loans is shorter and should end before the expiry of the lease or the rental.

Required Document For Loan against Property

  • Identity Proof
    1. PAN Card
    2. Aadhaar Card
    3. Voter ID
    4. Passport
    5. Driving Licence
  • Address proof
    1. Registered Rent agreement
    2. Aadhaar Card
    3. Driving Licence
    4. Lease agreement
    5. Passport
    6. Latest gas/Electricity bill
  1. Salary slips for the last 6 months for salaried employees (In addition, IT returns for the previous 3 years along with Form 16)
  2. IT returns for the past 3 years for self-employed persons (Some banks accept 2 years IT returns as well)
  3. Statement of A/c for the past 1 year where your salary is credited (in the case of salaried people)
  4. Profit and Loss statement and Balance sheet for the last 2 years in the case of self-employed persons
  5. Sales tax, GST registration certificates, if applicable
  6. Partnership deed in case of partnership firms (if the applicant is one of the partners or the firm itself)
  7. Certificate of Incorporation for limited companies(if the applicant is one of the directors or the company itself
  1. Copies of all property documents that can establish the chain of ownership for the past 30 years
  2. Encumbrance certificate for 30 years
  3. Property tax paid receipt