Types of loan against property: Eligibility and benefits

Taking a loan against property (LAP) is an excellent way to leverage your real estate asset to get the required funds. Here, you can pledge your property as collateral with a financial institution to avail credit.

Since the property acts as security, loan against property interest rates are generally lower than unsecured loans that don’t require collateral. With multiple LAP options available in the market, you can easily choose one that best suits your requirements.

Read on to learn the different types of loans against property, a few crucial eligibility parameters, and more.

Types of Loan Against Property

To avail affordable loan against property interest rates, it’s best to compare different types of LAP. This will help you understand their features and acquire the necessary funds.

Loan Against Commercial Property

A commercial property could be any official space, shop, or industrial real estate you own. The funds received from such loans can be used to fulfil needs like business expansion or personal financial obligations. In addition, you could also choose to invest in a new venture with the acquired sum.

Due to the nature of its usage, interest rates for commercial areas are more competitive when compared to others. However, bear in mind that financial institutions will sanction a loan amount based on the property’s current market value.

Lease Renting Discounting

Through such loans, you can avail funds by pledging your rented or leased property as collateral. In this case, you must submit monthly rental receipts to the lender.

On this basis, the lender will assess your overall cash flow and determine the loan amount. In addition, the financial institution will consider the EMI coverage from the monthly rent obtained. By opting for such loans, you may receive a higher sum to manage your requirements.

Loan Against Residential Property

Much like loan against commericial property, you could pledge your residential real estate to avail funds. Most borrowers prefer to opt for this type of LAP, especially during an emergency. The funds received through such loans could be used to consolidate multiple debts for repayment or renovate your home.

Loan Against Co-owned Property

In case your property has two or more co-owners, you can opt for a LAP against the co-owned property. But before mortgaging the property, you need to produce a No Objection Certificate signed by all co-owners for further processing of your application. However, remember that these rules and regulations may vary depending on the lender.

Top-Up Loan Against Property

Also known as a second mortgage, such loans can be taken over and above an existing loan on your property. However, the loan against property eligibility criteria for these loans are more stringent when compared to others.

Before approving a top-up loan, lenders assess your repayment history, credit report, and other related parameters. An optimal credit score and a spotless credit history can get you an easy and hassle-free loan approval. This also includes favourable terms such as an affordable loan against property interest rate and nominal fees.

Apart from these LAP types, some lenders also offer credit based on the usage and your employment type.

Eligibility Requirements for a Loan Against Property

Before applying for a LAP, it’s best to check if you meet the eligibility criteria. While most lenders have similar parameters, there may be slight variations.

Here are some common loans against property eligibility requirements:

● Nationality: Indian

● Age: 21-70 years

● Monthly income: Min. ₹30,000 (if salaried)

● Self-employed individuals must provide business proof with a profit and loss sheet

For self-employed applicants, lenders have also set a minimum criteria for a business’ years of operations. Staying on top of these requirements could help you avoid scenarios like loan rejection.

Documents Required for a Loan Against Property

Once you meet the required eligibility criteria, you need to submit the following documents to the lender for verification after the approval of your loan:

● Proof of Identity: Aadhaar card, PAN card, voter ID, passport or driver's licence

● Proof of Address: Aadhaar card, voter ID, passport, driver's licence or utility bills

● Banks statement of last 3 months

● Past three salary slips or ITRs filed (as per occupation)

● Pledged property’s original documents

In conclusion, there are various types of LAPs you could choose from. Before you apply for this loan, be sure to assess your financial requirements and repayment capacity.

Remember, if you default on the loan, the lender has the right to seize the pledged asset. Hence, read the fine print carefully to understand all the terms and conditions.