Type of properties against which lenders provide loans

There are many times in your life when you need finances to fulfil your dreams but do not have ready cash available. Setting up a business, sending your child for education abroad, weddings and home renovations are just a few of these situations when one can rely on borrowed funds. For this one can either take a personal loan or a loan against property.

A personal loan is an unsecured loan that is usually given for a maximum period of 5-7 years, whereas LAP as the name suggests is a secured loan taken by mortgaging a property. LAP is available for a maximum tenure of 15 years. Personal loan EMIs turn out to be higher, because of shorter loan tenure and a high rate of interest ranging between 17-22%. LAP is a cheaper way of borrowing funds. The EMIs are affordable as tenure is long and interest rate is lower, generally ranging between 12-16%. The personal loan amount depends on the income level and CIBIL score of an individual. Loan amount against property is based on the property value. So you can make use of an idle asset and borrow much more funds than you can through a personal loan. Moreover, if you have a low income or a bad credit history, a personal loan for low CIBIL score may turn out to be very expensive on your pocket. Loan against property will be an ideal choice in such situations.

Let’s see the kind of properties that one can mortgage to get a Loan against property.

1. Self-owned residential property
2. Self-owned and self-occupied residential property
3. Self-owned but rented residential property
4. Self-owned piece of land
5. Self-owned commercial property like shops, office buildings, malls etc.
6. Self-owned but rented commercial property

Factories, warehouses, schools, hospitals and multiplex buildings also qualify for LAP. One can also avail for LAP for under construction property that is 90% complete and being built by an approved builder.

The easiest way to get LAP is when you have a property with proper maps and plans that are sanctioned by the town planning authority. Most banks and NBFCs offer loans for such properties that have a clear legal title.

What if you have a registered property without map? Since these properties do not have a clear plan sanctioned by town planning authorities they have some amount of risk for the bank. With such properties you may need to provide documents like a proper sales deed and proof of sufficient income, so that you can gain the trust of the bank.

Is GPA sufficient to get LAP? General Power of Attorney is a legal instrument that gives an authority to act on someone’s behalf. The GPA holder does not own the property. Since he does not have any legal ownership, most banks and NBFCs do not provide loans against such property. One may try his luck with private lenders or some housing finance companies who may do so, but charge exorbitant rates to cover up for the risk.

Can Lal Dora land and agricultural land be used for LAP? Lal Dora land refers to that part of the village that is left for keeping livestock. Banks and NBFCs do not grant loan for such properties. Private lender on P2P platforms may offer such loans. Loan against property is not provided for agricultural land as it is not mortgageable.

One of the main requirements for LAP is that the property should be free from any legal and financial encumbrances. When an application for LAP is submitted, bank does a legal check and valuation of the property. The amount of loan that gets sanctioned depends on the valuation done. One can borrow up to 65% of the value of property. Hence, the kind of property that you put up as mortgage can be a deal breaker or deal maker when you file your application.