There are many instances in life when people need extra funds for various financial emergencies. One may be faced with medical emergencies or have to fund their children’s higher education or weddings.
In such cases, people can consider applying for a loan against property. Also known as a property loan, it is a secured loan which people can avail against residential or commercial properties. The following sections will focus on the document checklist for property loans and other important requirements.
Property loan document checklist
The documents required for a loan against property (LAP) vary from lender to lender. But here are some documents that people should consider keeping ready when applying for an LAP:
- Proof of identity (voter ID card/passport/PAN card/driving licence)
- Identity card issued by the employer (for salaried individuals)
- Proof of address (telephone bill/rental agreement/electricity bill/passport/bank passbook/driving licence/ration card)
- Proof of age (passport/PAN card/certificate from a statutory authority)
- Bank statements (bank passbook for the previous 6 months/bank passbooks/salary slips for the previous 6 months)
- Income Tax Returns for the previous 3 years
- Form 16
- Documentation related to the property that an individual has offered as collateral
Apart from the documents mentioned above, self-employed individuals should keep ready their income proof and key financial documents for the previous 2 years. This includes their profit and loss statement and balance sheet. These documents should be attested by a Chartered Accountant (CA).
Small and Medium Enterprises (SMEs) should ensure they have in place the audited financials for the previous 2 years.
Why do financial institutions ask for these documents?
Documentation is essential for loan approval because it is the only way financial institutions can know their applicants’ identity and financial status.
Some of the important reasons why banks and NBFCs have a property loan document checklist are as follows:
- Lenders ask for documents to have a clear idea about an applicant’s nationality and age. The age of an applicant is an important factor taken into consideration by lenders as it determines their risk. Every lender has its own minimum and maximum age limit.
- Lenders need to assess financial documents because they need to understand the financial status and habits of applicants. By evaluating financial documents, they are reassured of the borrower’s repayment capacity.
- Financial institutions check the credit score of applicants to understand how worthy the person is of receiving credit. This 3-digit score can be verified from the documents submitted by people.
- Monthly income and bank statements enable lenders to understand whether loan applicants have sufficient income for EMI payments considering their living expenses.
Eligibility criteria for loan against property
The eligibility criteria for a loan against property vary between different financial institutions. The following requirements are applicable to most loans:
- The applicant must be a salaried or self-employed person with a regular and stable source of income.
- Salaried individuals must work at Government offices, private sector companies and established multinational companies (MNCs) for a minimum of 3 years.
- Self-employed individuals must be able to submit details of a steady income. The enterprise they are associated with must have a vintage of a minimum of 5 years.
- The applicant must be a rightful owner of the property against which they wish to avail a loan.
How to apply for a loan against property?
Following are the steps to apply for a loan against property:
Step 1: Visit the official website of a chosen lender and navigate to the ‘loan against property’ section.
Step 2: Fill up the personal details including name, date of birth, contact details and address.
Step 3: Provide the requisite income details and submit the form.
After the applicant completes these steps, representatives of the financial institution will contact them and guide them on the subsequent steps.
Usually, lenders have their own eligibility criteria regarding minimum income and age. Applicants must take into account these important factors before filling up their application form.
Availing a loan against property is easy and hassle-free, especially for people who check property loan document checklist and keep the documents ready. Most financial institutions including NBFCs (Non-Banking Financial Companies) offer online application procedures which enable potential applicants to apply at their convenience.
With loans against property, applicants can get the benefit of better interest rates and longer repayment tenure than unsecured loans. Moreover, they don’t have to move out of the house against which they have availed a property loan.
Important factors to consider before applying for a property loan
While it is a good idea to avail a property loan to fulfil urgent fund requirements, there are certain factors which applicants must consider:
- The property must be free from any kind of dispute. If there are legal problems among property owners regarding ownership or if the documents are not in place, it may lead to the rejection of the loan application.
- Applicants must opt for a loan amount which they can manage. They can use a property loan EMI calculator to have a better understanding of their monthly repayment obligations. Using this online financial tool to compare the offers of various financial institutions can help people choose the most suitable loan.
- Applicants need to choose a repayment tenure they are comfortable with. To choose a flexible tenure, they must keep in mind their repayment capacity and interest rate. This is where an LAP EMI calculator will be of use.
- It is a good idea if people check the value of their property beforehand. Factors like property type, location and condition affect one’s loan eligibility and interest rates.
- Many financial institutions offer pre-approved offers for their long-standing and valued customers. If people decide to apply for a loan against property, they can get faster approval using these offers. To check a pre-approved offer, one can visit the official website of a lender and go to the ‘pre-approved’ section.
There are various types of loans against property depending upon the category of the property and usage of the loan. For instance, people can avail a loan against their residential and commercial property. Furthermore, they can use their rented property as collateral to avail a loan. In this case, all they have to do is submit the monthly rent receipts along with other documents.
A loan against property is an effective solution to meet cash crunches during weddings in the family, medical emergencies or children’s higher education. Professionals such as doctors, lawyers/advocates and chartered accountants can consider availing this financing option to finance their chambers/workspaces.
To sum up, if people check the document checklist for a property loan and keep important documents ready, there is every chance of their loan applications getting sanctioned quickly. Financial institutions check these documents to evaluate the eligibility of a loan applicant.
