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Last Updated : | Source: Moneycontrol.com

How to make the most of your property with a LAP

Loan against property can help you unlock the hidden value of your property by granting access to cheap and long term source of fund raising.

Vineet Jain

For most Indians, buying a house is an indicator of financial stability. No wonder, people overstretch themselves to buy one. After paying hefty down payments and equated monthly installments (EMI) over couple of decades, many believe they have bought one big liability. Many experts write extensively how a house pushes you away from the goal of financial freedom. However rarely they tell you that the same house can be your biggest asset if utilized wisely. Today we will see how to make the most your house or property to raise money that can help you attain your financial goals.

Loan against property

Loan against property (LAP) is a secured loan in which one’s existing property is mortgaged to raise funds from a bank or a financial institution. Below listed requirements can be met by using a LAP:

•Starting up a new business venture
•Expanding the existing business venture
•Medical expenditures
•Higher education
•Renovation purpose
•Working capital requirement

It can be taken as a term loan with fixed EMI or as an overdraft (OD) facility. It is a big positive as business has fluctuating requirement of capital and an OD gives the needed flexibility. Interest is payable only for utilized funds at any point of time. So, a business man can use it as their regular current account in which regular inflows keep saving interest costs. It thus serves the purpose of contingency Funds as one can withdraw money as and when needed. You can apply for one in the capacity of an individual as well as jointly with other individuals or other legal persons such as a company or LLP.

There is no upper cap on the amount that can be applied for by the borrower for loan against property. However, the amount of loan that the borrower can avail will be dependent on the nature of property and the specific norms of the respective lender. Various banks ascertain the loan amount based on the market value of the property and repayment capacity of the customer. Generally the maximum loan amount is subject to loan to value ratio (LTV) - varies from 45-90 % of the market value of the property. For example, if a bank is willing to apply an LTV of 60% and the property is worth Rs 1 crore, you may get a loan or OD limit of Rs 60 lakh subject to other conditions.

Lap can be availed against residential, industrial and commercial property including a warehouse or a land parcel. Residential property gets the highest LTV and land parcel the lowest. I hope by now you have realized why I term your house as a real good asset for you.

How to avail a LAP

1.Check your eligibility for loan
Banks offer the loan amount once you fit in the various eligibility criteria like age, income and your overall profile is verified. You can use the online tools available to check the same or visit the bank’s website.

2.Choose the right lender
Fundamental parameters like interest rates, application fees, processing fees and legal charges of different banks must be compared first before making the best choice. You can refer to the comparison chart of LAP interest rates online to give you a crisp and clear look at different interest rates of top notch banks.

Once the lender has been selected you have to fill the application form and give all the required information about your financial assets and liabilities; property details and other personal and professional details.

LAP caters largely to the self employed segment and a lot of documents are needed for income assessment. Multiple iterations are possible in terms of fresh documentation requirement by the lender. They have to be in sync with the details in the application.

5.Credit history check
Bank checks the LAP eligibility of the borrower and also the credit history is checked through CIBIL score. This score is highly influential in the approval of the loan amount. A customer holding low credit score leads to straightaway rejection of the application, as it implies earlier credit defaults. Whereas a high credit score is favourable for the approval of application of LAP.

6.Legal and technical clearance of the property
Legal documents of property are asked from the borrower to check its authenticity and for security of the loan amount given. Next is the valuation of property determining the loan amount which can be given by the Bank with the property to be mortgaged as the collateral, as LTV for each bank is pre-define

7.Sanction letter issuance
Once the credit appraisal of the borrower is done, the bank decides final amount and sanctions the required LAP. Also an offer letter is sent to borrower which has details like loan tenure, repayment options and rate of interest which has to be duly accepted and sent back to the lender

8.Disbursement agreement signing
Finally, we reach the final step. After following the above mentioned procedure, bank disburses the loan amount once the borrower signs the disbursal documentation and submits the original property papers/ assurance that the same will provided within a stipulated time frame.

Overall, the valuation of properties has been on the rise and one can use a LAP to unleash the value locked in the asset. With the positive economic cycle in the country, “ACCHE DIN”, businesses need easy access to cheaper funds for their expansion plans to ensure they capitalize on the fantastic opportunities. Their biggest asset is the property; this is the right time to utilize the same for funds as it is beneficial as compared to other products such as education loan, personal loans and loan against fixed deposits due to its long term nature and low interest rates.
First Published on Mar 14, 2016 04:03 pm