You never know when you will face a financial emergency. During a crisis, most people dip into their savings without considering the future challenges they might face as a result of depleting them. But what’s the alternative in such cases?
If you own real estate, such as a residential house or commercial premises, you can easily use it as collateral to obtain funding. The notable features of this loan product are flexibility and affordability. You can use the funds for legitimate purposes, and the interest rates are lower due to the security the mortgaged property offers to the lender against default.
Step-wise Guide to Obtaining a Loan Against Property
Here’s what you must do to secure a loan against your property —
1. Planning
Have a clear idea of the need to apply for funds. People usually apply for a loan against property to meet medical expenses, fund a wedding, start a new business, or send a child abroad for higher studies. If the funding requirements are minimal, say Rs 2-3 lakh, then putting up your property worth Rs 50 lakh makes no sense.
Once you are clear on the purpose, review your budget to understand exactly how much you can afford. Compute your monthly expenses on necessities like groceries, utility bills, your child’s school fees, and commuting expenses. Use a loan EMI calculator to try different combinations of loan amounts and repayment tenures to get an idea of what the possible monthly obligations for your desired sum could be.
2. Comparison
Multiple lenders offer loans against property in the market. However, each differs somewhat in terms of interest rates, maximum funding, and eligibility.
For example, you might encounter a lender willing to approve funds at a lower interest rate, but the maximum funding they offer is far less than what you require.
Lenders are also specific about the type of tangible asset against which they sanction funds. Some lenders do not accept a plot as collateral, while others accept only commercial properties or properties that fall under the municipal authority zone.
There’s another notable feature that some lenders offer: Flexibility in loan repayment. With a flexible EMI plan, you can manage your finances and plan your budget with ease and comfort.
3. Detailed Eligibility Check
After deciding on the lender, visit their official website and navigate to the loan against property product page. There, you will find detailed information on the eligibility criteria, documentation, and application process.
For example, if you are applying for a Godrej loan, you need to meet the following criteria:
- Occupation — You can apply if you are salaried, a self-employed practising professional, or run a business that does not fall under professional services.
- Maximum funding — You can obtain the lower of the following: Up to Rs 15 crore or 85% of the value of the property you wish to put up as collateral.
- Interest Rate — The interest rate ranges from 9.75%-15% per annum.
The list of documents required to apply with this lender is:
- Copy of your PAN Card; if you do not have one, then Form 60 is required.
- Address and identity proof.
- Income proof such as salary slips, salary certificate printed on the company letterhead, salary account statement, and appointment letter mentioning your joining date, designation, and CTC.
- The previous two years’ proof of bonus (if any).
- Property-related documents, such as an allotment letter, registration certificate, occupancy certificate, share certificate, and property tax receipt.
4. Submit Application
The application process varies with each lender. Still, to give you an idea, here are some common steps involved in the process:
- Search for your lender using the Google search bar and click on their official website.
- Look for the loan against the property under the product section displayed on the home page.
- Tap the ‘Apply’ button and provide personal, professional, and income details.
- Upload the documents supporting the information you have provided.
- The lender’s executive will review the application and perform a credit appraisal to determine the risk of lending to your profile. They will also personally visit the property you are mortgaging to check its condition and growth potential.
- Next, the lender’s legal team will check the authenticity of the property documents to ensure there is no dispute over them.
If the lender’s credit and legal team find everything in order, they will process the disbursement, which you can expect in your bank account in 1-2 business days.
5. Start Repayment
Have a proper repayment plan in place. Automate your obligations to ensure that you do not skip a single EMI.
If possible, aim for partial or complete repayment. You can do this by using the proceeds from your investments, performance-linked bonuses, or regular gains that you make from trading in stocks (if applicable). Doing so can not only help reduce the total interest payable on the loan amount but also improve your credit report and make it easier for you to obtain fresh funding in the future on better terms and conditions.
Conclusion
Obtaining a loan against property is a prudent alternative to depleting your savings during financial emergencies. By following a systematic approach — planning your budget, comparing lenders, checking eligibility, submitting the application, and starting repayment — you can secure the necessary funds efficiently. This method not only offers lower interest rates but also provides flexibility in using the funds.
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