Loan against Property Overview

Personal Loans are usually of two types i.e. secured personal loan which is secured against the mortgage of immovable property, insurance policies, gold jewelry, investments, etc and another is unsecured personal loan which does not require you to pledge anything.

Mortgage Loan commonly known as “Loan Against Property” in India is a secured loan that is sanctioned against fully constructed, freehold residential and commercial properties.

Some of the key factors are given below for your consideration before you apply for Loan Against Property.

Purpose

Loan against Property is normally taken for funding various personal or business needs of an individual e.g.

· Business Expansion

· Education Expenses of children

· Marriage expenses in the family

· Purchase of home

· Improvement or Extension of existing Property

· Medical Treatment

· or Any other personal Need.

Eligibility

The applicant for the loan should be:-

· Minimum 21 years of age

· Salaried Individual

· Self Employed professionals / non-professionals

Applicant should be the owner of the property and all co-owner has to compulsorily be co-applicant to the loan, however the co-borrowers need not be the co-owner to the loan.

Loan Amount

Typically you can get up to 50% – 60% of the value of the property or twice your annual income (whichever is lower) as a loan against property. The maximum loan amount is normally between Rs. 5 – 10 crores, but can be extended in some cases depending on the borrowers profile

The final loan amount is dependent on host of other factors like income and regular outgoings, existing loans, repayment track record, valuation of the property by the lender, etc.

Rate of Interest

Loan against Property is normally available on Floating as well as Fixed rate of interest. Most of the lenders will offer fixed rate of interest with a reset clause of 2-5 years which means that your fixed interest rate will be reviewed every 2-5 years and can be increased or decreased as per the terms and conditions mentioned in the agreement.

Repayment

Most lenders offers maximum tenure of 15 years but it is also restricted by the borrower’s age at the end of the tenure so as to ensure that the loan repayment ends on or before the retirement age of the borrower which is usually 60 years for salaried and 65 years for self-employed borrowers.

Fees and Charges

The processing fee for Loan against Property may vary from lender to lender but is usually up to 2% (excluding service tax) of loan amount.

The loan can be foreclosed any time on the payment of applicable penalty, however if the loan is taken on floating rate from the BANK then the borrower need not have to pay any foreclosure charges as the RBI has issued notification banning penalty of prepayment of all floating rate loans.

Documentation

To start the loan process, the lender will require proof of:-

· Identity

· Age

· Residence

· Income

· Property Documents including Title Deeds, chain of documents (if resale) and no-encumbrance certificate

One thing that needs to be noted is that if you are planning to buy a residential property, then it is advisable to take a Home Loan as they are cheaper, available for a longer tenure up to 30 years and lenders finance up to 90% of agreement value of the property as home loan as compared to Loan Against Property..

In case you are unable to get home loan due to any reason then you can take the loan against property.

[Source: http://www.apnapaisa.com/loan-against-property-overview/]

Property Loan

Let your property be a shelter to your dreams. IDBI Bank Loan against Property is a multi-purpose loan that can be used for your business or personal needs. Property Loan

4 Credit Tips for Buying a Home

1. Pay Down Debt/Rapid Re-Scoring

Some mortgage lenders have a credit doctor service, known as rapid re-scoring, available through their credit reporting company. This service allows them to run statistical credit modeling: the lender plugs in a certain credit score needed, an algorithm analyzes your complete credit portfolio and outlines what can be done to get you to that aforementioned threshold.

Oftentimes, high credit utilization (the amount of debt you are carrying versus your total available credit) is the culprit for a low score. In those instances, paying down certain credit accounts could make you more creditworthy — and mortgage eligible — within short period of time.

2. Time

If buying a house is a longer-term goal, time can be your friend. Credit history is a large component of a healthy credit score. Make your payments on time, keep the amount of debt you are carrying low and avoid late payments of any kind. These smart spending habits show that you are responsible with your obligations and will bolster your credit score eventually.

3. Quit or Resolve Disputes

In order to get a Loan against Property, you generally cannot have any accounts in dispute on your credit reports. At the same time, simply removing a dispute from your credit report can make your credit score drop. The reason? Credit scoring models generally ignore information being disputed, like an account with a late payment, which would otherwise hurt your credit score.

In order to circumvent these problems, work to resolve any disputes. (You can find more about getting errors off of your credit reports here.) You can also consider handling any issue you may have with a lender directly in lieu of filing a formal dispute with the credit bureaus. Here are some tips for negotiating with creditors.

4. Put More Money Down

Putting more money down to buy a home could put you in an entirely different mortgage category and help you bypass certain credit scoring problems.

Remember, if you have been told “no” by a bank or lender, you owe it to yourself to get a second or third opinion. What’s more, your credit score could improve from month to month, depending on what’s holding you back, so keep an eye on it in the meantime.

[Source: http://blog.credit.com/2016/03/4-credit-tips-from-a-mortgage-pro-139033/]

Loans against property: a time bomb ticking away?

In the fiscal year that ended 31 March, credit growth of India’s banking industry dropped to an 18-month low. The microfinance industry, in contrast, saw its loan book grow at the fastest pace and for a few it more than doubled. The scenario has not changed for banks in the past few months; year-on-year credit growth is now 9.8%. There are hardly any takers for loans from the corporate sector; the saving grace has been mortgages and retail loans.

At around Rs.12 trillion, the mortgage market in India is a little less than 10% of the size of its economy even as the overall bank credit market is about 50% of the nation’s gross domestic product or GDP. Indeed, the mortgage market has been growing at a fairly robust pace over the past decade but it is still small compared with other nations. For instance, the Chinese mortgage market is about 20% of its GDP; for the UK and the US, it has been 88% and 81%, respectively, while in Denmark, it is more than the GDP.

Home loans are the safest bet for Indian bankers, as they are backed by securities and the amount of loan is always less than the value of the property. In case of a default, the property can always be seized and sold to recover the money. Also, most banks and non-banks finance the first home purchase of salaried individuals; income verification for such home buyers is not difficult and affordability can be judged transparently.

Typically, around 40% of monthly income is used to service the loan in the form of equated monthly installments. However, within the home loan market, the increasing popularity of loans against property or LAP is causing some discomfort. A few analysts say that LAP is a ticking time bomb.

To be sure, Loan against Property is a secured loan. It takes a residential or a commercial property as collateral; self-employed individuals and professionals are LAP customers. Such loans are typically taken to support business in the form of expansion, diversification, consolidation or even meeting working capital needs. It is also taken for personal use like weddings, education, medical exigencies, repayment of previous loans and debt consolidation. According to rating agency Crisil Ltd, about 75% LAP customers are self-employed individuals doing business, 15% are salaried and the rest self-employed professionals.

The average LAP ticket size is higher than a home loan; its tenure is also shorter than the home loan, with the average being four to five years against 10-11 years for home loans. Typically, the interest rate for LAP is always 4-5 percentage points higher than the home loan rate. Similarly, the loan-instalment-to-income ratio is also higher for LAP—at least 50% against 40% for home loans. Finally, the loan-to-value ratio for LAP is lower—around 60% against 80% for home loans. In other words, a home buyer can get a Rs.80 lakh loan to buy a Rs.1 crore property but for LAP, a Rs.1 crore worth of property will fetch a loan of Rs.60 lakh.

[Source: http://www.livemint.com/Opinion/VbRw1lmZwZFfeZP43yCjLJ/LAP-A-TIME-BOMB-TICKING-AWAY.html]

Loan against Pr

Let your property be a shelter to your dreams. IDBI Bank Loan against Property is a multi-purpose loan that can be used for your business or personal needs. 

Investment Property Loan Types

An investment property mortgage is a loan for non-owner occupied property. There are two main classifications of investment property mortgages. These classifications include: commercial and residential. A commercial property mortgage is for a dwelling that contains 5 or more units and/or is zoned as commercial. A residential investment mortgage is for a dwelling that is one to four units and is zoned residential. Commercial and residential mortgages are two completely different loan types and have significantly different qualification standards. The following is a basic description of each mortgage type.

Residential Property Investment Loans

Residential property investment mortgages have similar qualification guidelines as standard owner-occupied mortgages. Although, they do have higher down payment and credit score requirements. Below is a summary of the general guidelines for residential investment mortgages.

• Credit Score Requirement – The minimum credit score requirement is typically 680 or above for investment mortgages.

• Debt to Income Ratio – Typically, the debt ratio limit for an investment mortgage is 40% of the borrower’s verifiable income. Besides W2 income, the borrower’s last 2 years tax returns will be needed to calculate the income that can be used from other rental properties or other sources of income.

• Down Payment – Investment property mortgages require at least 15% down, but the down payment requirement increases with lower credit scores and the greater the number of units in the property.

• Income – Lenders typically will only use rental income if the borrower has a two-year history of owning rental properties. This is usually documented via the tax returns and schedules.

Commercial Property Investment Loans

Commercial loans typically have higher rates, greater fees, and shorter terms than residential mortgage. The two most important factors for lenders on this loan type include: a positive cash-flow for the property, and the borrower’s past commercial property management experience. Below is a summary of the general guidelines for residential investment mortgages.

• Credit Scores Requirement – The minimum credit score requirement is typically 720 to 740 for a commercial loan.

• Down Payment – The minimum down payment for a commercial mortgage is typically 30% or greater. When refinancing, the maximum equity position is usually 70% of the appraised value of the property.

• Debt Service Coverage – This is a ratio used by lenders to calculate the property’s ability to generate cash flow. It is a calculation comparing the net operating income minus the mortgage payment and the other debt payments.

Other funding sources include: hard money lenders and private loans. Hard money loans are short-term loans from private investors. Private lenders typically use the equity position in the property as the determining factor whether they will approve and fund the loan. There are usually excessive closing costs and fees (points) charged on this type of loan. Property loan are loans that a person would receive from their family or friends. The terms may or may not be similar to hard money loans. Both hard money and private lenders typically only put a lien on the property and do not report payments on the borrower’s credit report.

Source: https://memphisbuyandhold.wordpress.com/2015/06/29/investment-property-loan-types/

Decoding tax benefits on interest on Loan against Property

If you have taken a home loan to buy a house, your interest outgo can help you save on tax. Let’s find out how.

The quantum of tax benefits that can be claimed depend upon whether you live in the house property or it has been rented out. It is worthwhile to note that all these tax benefits can be available where the construction of the house property has been completed.

These are not available for a property which is under construction. However, interest that belongs to the pre-construction phase is allowed to be claimed based on certain conditions.

For Self Occupied House Property:  The maximum tax benefit for interest on a home loan is restricted to Rs. 2, 00,000 whether you live in the house yourself or whether it is lying vacant. The same cap applies if your parents, spouse or children live in the house, or if you leave the house vacant. This deduction is available under Section 24 of the Income Tax Act. Please note that the loan must have been taken for purchase or construction of a house property. If loan has been taken for repairs or reconstruction of a property your interest deduction shall be limited to Rs. 30,000. Also, the purchase or construction must be completed within 3 years from the end of the financial year in which the loan was taken. You need to show the interest payout for the financial year under the head ‘income from house property’ in your income tax return. This loss that arises due to interest shall be adjusted against income earned by you under other heads such as salary or income from other sources. Any unadjusted loss can be carried forward for eight assessment years in your return and set off against house property income in the subsequent years.

For Rental Property: If you have let out the house for which you have taken a loan, you are allowed to claim the entire interest against the rental income. You can also reduce property taxes paid by you. From the net value, which is rental income less property taxes, a standard deduction of 30% (of net value) is allowed to be claimed. Also, the entire interest payment is allowed to be adjusted from such net value. Therefore, rental income less property taxes less 30% standard deduction less interest on home loan shall be your income (or loss) under the head house property. Similar to loss on a self-occupied house property, this loss can be adjusted against other heads of income and carried forward to 8 years when not adjusted fully.

Pre-construction Interest Pre-construction interest is allowed in 5 equal installments, starting from the year in which the house is purchased or the construction is completed. Accumulate the interest outgo for the years before the financial year in which construction was completed, and claim it along with the interest for the current financial year. Do note that pre-construction interest is included within the overall limit of Rs. 2, 00,000 for a self-occupied house and only a fifth can be claimed each year.

How to claim Interest Deduction You can claim this deduction at the time of filing your return if you have not informed your employer about it in a timely manner. Here are the details and documents you will need to claim interest deduction in your return.

Ownership details of the property – The tax benefits of interest are only available to owner of a house property. You may be repaying the interest, but if you are not an owner you will not be able to claim interest deduction in your return. In case you are a co-owner in the property find out your share in the property. The amount of deduction you can claim is based on your share in the property. Both the joint owners can claim a maximum deduction of Rs. 2, 00,000 each for a self-occupied property.

Completion of construction or date of purchase of the property – The deduction for interest can be claimed starting the year in which the construction of the loan against property is completed. You can also claim pre-construction interest as mentioned above.

Borrower Details – For claiming interest deduction the owner must also be a borrower in the home loan documents.

A certificate from the bank which has your interest and principal details. This you can use to find out your outgo towards interest and principal. Municipal taxes paid during the year.

Municipal taxes are allowed to be deducted when these have been actually paid during the year.

Other Tax Benefits Besides interest, the portion of your EMI which goes towards principal repayment is allowed to be claimed under section 80C. This amount can be claimed within the overall limit of Rs 1, 50,000 under section 80C. If you have paid stamp duty and registration charges, those are also allowed to be claimed under section 80C

Source: http://decodingtaxbenefitsoninterestonloanagainstproperty.pen.io/