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Key factors to consider before you apply for a property loan

A loan against property has become a popular credit option for borrowers looking for sizable funds by keeping their immovable assets as collateral. However, many factors determine whether the loan is sanctioned or not. Hence, borrowers must consider the following factors before they apply for a property loan.

Profile of the applicant

Parameters related to the applicants’ profiles:

  • Age

Financial institutions set a minimum and maximum age bar for applicants to opt for a loan against property. Age-proof documentation is a vital part of the required property loan documents.

  • Employment

Lenders perceive frequent job shifts as unreliable. Hence, long-term employees of an organisation/MNC tend to have higher chances of getting the loan sanctioned.

  • Income

The interest rates may be higher if the borrower is self-employed or has a fluctuating income source. On the other hand, interest rates would be lower for a salaried person with a decent, stable income.

Note: Applicants can input their monthly income and expenses in a property loan eligibility calculator and find out the maximum loan amount they are eligible for. 

  • Credit score

To get the best deals on a loan against property, it is advisable to have a credit score of 750 or more. Lenders may reject the loan application or charge higher interest rates if an applicant has poor credit score.

  • Lender-borrower relationship

A decent relationship with the lender is hugely beneficial while availing of a loan against property. Hence, borrowers with a long credit history and disciplined repayment behaviour with their lenders get quick approvals and low-interest rates.

  • Regularity of ITRs

Lenders typically ask for income tax returns for the past 3 years during the document verification stage. Even with sufficient income, if lenders find out that the ITRs are insufficient, they may not approve the loan application.

  • Previous loan rejections

Borrowers with multiple loan rejections face difficulty while getting a loan approved. Hence, borrowers should be aware of this factor and check their credit reports before they apply for a property loan.

Valuation of the property

Parameters related to the pledged property:

  • Type of property

One can mortgage any of the following types of properties: 

  • Residential properties, such as houses, apartments or residential lands get higher interest rates as they have low selling value.
  • Commercial properties, such as office or factory premises can get lower interest rates as these properties tend to have higher selling value.
  • Location

If the property is in a prime location, like a downtown area, securing the loan becomes much easier than those located on the outskirts of a city.

  • Documentation

Lenders verify all documents of the pledged property. If they find discrepancies in the paperwork, they can reject the loan application.

  • Insurance

Borrowers who have their pledged property insured have a higher chance of getting a faster loan sanction than the ones who don’t.

Loan-related parameters

Parameters related to the loan against property itself:

  • Processing time and fees

Lenders charge processing fees for all loans against property applications. It is generally charged during the application process.

As lenders legally verify the details provided by borrowers, the processing time might be higher than other loan options.

Note: Eligible individuals can opt for a property loan balance transfer to shift their pending loan dues from one lending institution to another to opt for better offers or reduced interest fees.

  • Property loan tenor

Shorter loan repayment tenors equate to higher EMIs. Conversely, longer loan tenors reduce the EMI payouts.

  • Types of interest rate

Borrowers may choose between 2 types of interest rates:

    1. Fixed rates: Lenders determine a fixed interest fee, which is constant throughout the loan repayment tenor.
  • Floating/rates: Market fluctuations affect floating rates, as a result, they can change every quarter of a year.
  • Property loan tax benefits

Applicants can opt for tax exemptions under the following sections of the Income Tax Act of 1961:

  • Section 24(B): Section 24(B) is for salaried individuals who use the received amount to buy a new home. They can enjoy tax rebates of up to Rs.2 lakhs.
  • Section 37(1): Self-employed individuals can enjoy tax deductions under Section 37(1) if they use the loan credit for business expenses.

Several financial institutions extend pre-approved offers on home loans, loan against property, etc. Individuals can check their pre-approved offers by providing the necessary information.

All the above-mentioned factors may vary based on an individual’s credit profile, property, and risk involved. So before borrowers apply for a property loan, they must do thorough research and compare the loan offers across lenders before finalising.

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