When applying for a Loan Against Property
A Loan against Property is what you get when you mortgage your property to raise money whatever be the purpose. Most typically people use a loan against property as a business loan to grow their business or to fund their children's education/ marriage. Here are some things to keep in mind when applying for a Loan Against Property.
Get your own credit report Apply online at http://www.cibil.com/accesscredit.htm and follow the instruction given there to get a copy of your own and your guarantor's credit report. Check your credit report thoroughly to spot errors. If need be, use our advisory services on CIBIL Report to get any errors corrected. Remember any errors in your credit report can reduce your chances of getting a loan against property offer.
Loan eligibility will also depend on your income : The lender will sanction a loan based on both the value of the property as well as your regular income. Since it is not easy to repossess and sell off a property the lenders will depend on your income source to make repayments on the loan. As a thumb rule you can get about 50% of the value of the property or 2-3 times your annual income as a loan (whichever is lower)
Loan against property is more expensive than a regular home loan : In a regular home loan the end purpose of the loan is clearly known as payment to the seller of the property. A loan against property can be used for any purpose and repayment may depend on the returns received from such activity. Hence it is riskier for the lender and they charge more to provide for the extra risk.
Lenders will value the property independently : Lenders carry out an independent valuation of the and one of the loan limits will be around 50-60 % of the valuation amount as determined by their valuers. These independent valuers normally are conservative and value the property much lower than what you might actually think the market value is. While you can ask for a second valuation (at your cost off course) you should be prepared to settle for a lower loan limit if the property value is the limiting factor for loan eligibility.
Get
a education loan against the security of the property if that is the end
purpose of the loan against property. It is cheaper and comes with easier
repayment terms including repayment holidays.
Do not sign blank application forms or documents and keep a copy of all documents submitted to the lender for your future reference.
Any promise made by the DSA or even an official of the lender has no value unless it is in writing or at least on email.
So if you are basing your decision on any such promise make sure you get it in record in some form.