Applying for a loan against property is a strategic financial move used by individuals who want to leverage their real estate. This capital can be used for various purposes such as financing their child’s education, medical or personal emergencies, business expansion, or streamlining debt. However, the documentation involved in the loan application process can seem difficult and overwhelming. To avoid such situations, individuals must simplify the documentation process. This article explores what is a loan against property, the documentation required, and ways to simplify the documentation process.
Loan Against Property Explained
A loan against property or LAP is a type of secured loan in which borrowers pledge their residential or commercial property to banks and Non-Banking Financial Companies (NBFCs) for access to capital. The amount of capital depends on various factors such as the current market value of the property, the repayment capacity of the individual, and the lender’s terms and conditions. Various borrowers prefer this type of loan as the interest rates are relatively lower alongside extended repayment schedules.
Types of Documents Needed
The documents needed for applying for a loan against property can be briefly divided into three categories: documents related to personal identification, financial records, and property-related papers. Let’s understand each of them in detail.
- Personal Identification Documents: These documents help lenders verify the identity and residential details of the borrower. Documents such as an Aadhaar card, PAN card, passport, Voter ID or driver’s license can be used for identity proof. For address verification, applicants can use utility bills, rental agreements, passports and ration cards. Additionally, make sure to arrange for passport-sized photographs.
- Financial Documents: The financial stability and income levels of an individual determine their repayment capacity. Therefore, lenders ask for documents such as salary slips for the last three months, form 16 or Income Tax Returns (ITRs) for the past two years, and bank statements for the past six months from salaried employees. For self-employed applicants, lenders request audited financial statements for the past two years, ITRs of the past three years and business registration or continuity proof.
- Property-related Documents: To secure a loan against property, the pledged property’s legal and market status must be clear. To verify this, you may submit documents like the original agreement from the property’s buyer and tax payment receipts. Furthermore, an encumbrance certificate that proves the property is free from legal disputes and a building plan verified by authorities is also essential.
Simplifying Documentation Process
Borrowers can simplify the documentation process by utilising the strategies mentioned below.
- Create a Detailed Checklist: After researching various lenders, create a comprehensive checklist of the documents required by the lender. This will help borrowers to stay organised throughout the application process.
- Gather the Required Documents: After creating a checklist, start collecting the required documents well in advance of your application date. This will help you acquire certifications from government offices on time.
- Keep Documents Up to Date: Make sure that the documents you have collected are updated as per the current requirements.
- Organise Physical and Digital Documents: Start organising documents by using labelled files according to the lender’s specifications or the above-mentioned categories. Make sure to make digital copies of all the documents. This will be helpful in situations where the lenders request for digital submission of the documents.
- Consult With Your Lender: Before submitting your application form, inquire about additional documentation requirements with your lender. This is because various lenders have different requirements to streamline the process.
- Seek Professional Assistance: Individuals may also consider hiring a professional who specialises in loans against property to assist them in the documentation process.
- Check Before Submitting: Before submitting the application form and all the documents along with it, make sure that you have collected all the documents from the earlier checklist. This will help you avoid any discrepancies that may cause delays or lead to the rejection of your application.
Conclusion
Applying for a loan against property can allow individuals to leverage their real estate to attain capital for meeting financial requirements. The tedious documentation process involved in the application can be simplified. Since various lenders have different documentation requirements, individuals must research and create a checklist of the requirements documents. Make sure the loan against property documents required are up to date and a digital copy of the same is created. Before submitting the application form, ensure that all the documents are arranged in a specific order. This will reduce the potential chances of rejection and assist you in acquiring capital to meet your financial requirements.