The demand for a loan against property is witnessing an increasing trend and is expected to grow at a CAGR of 14% in terms of value till FY 2026. The primary reason behind this is its low-interest rates, flexibility in how funds are used, and accessibility of large loan amounts.
So, it is critical for prospective borrowers to understand the eligibility criteria for loan against property and the factors affecting them if they are considering getting a LAP loan.
9 Factors that affect eligibility criteria for loan against property
Before applying for a loan against property, the borrower must meet several requirements. It is important to note that these prerequisites may change depending on the financial institution.
Regardless, the fundamental standards remain the same, and those include:
- Age of the applicant
When approving a loan against property, lenders have a particular minimum age requirement. It is an essential factor that determines whether or not your loan application will be granted. For example, suppose individuals are considering a LAP from reputed financial institutions. In that case, the borrower’s age must be at least 25 years for self-employed candidates and at least 28 years for salaried applicants.
- Credit score
The CIBIL, or credit score, provides information on a person’s effectiveness in repaying past-due loans and credit card bills. This three-digit number, in essence, represents a borrower’s creditworthiness.
Therefore, it is vital to keep a strong credit score before applying for a LAP. Also, individuals must remember that late or missed payment and bounced checks can harm their credit score and make it challenging for them to get a future loan.
- Current employment
When granting any credit, almost all financial institutions verify the borrowers’ present employment status and monthly income. This way, lenders determine borrowers’ capacity to repay EMIs by evaluating their monthly payments.
The company’s employment duration is another crucial factor determining ability to repay the loan. Again, this is because regularly changing jobs can indicate a person’s financial instability, so financial institutions might see this as a drawback.
- Income source
The income source of a borrower has a significant impact on the loan against property eligibility requirements. This attribute and employment status are firmly related, so prospective borrowers must pay special attention to it. Additionally, an applicant must maintain a steady job and income in order to qualify for a loan.
- Repayment tenor
Opting for a mortgage loan is a long-term commitment; for this, lenders often permit borrowers to select a tenor that is up to 20 years long. In addition, the amount borrowed and the borrower’s current income determines the sanctioned loan amount. Hence, choosing the correct repayment tenor is essential in LAP eligibility, and it also affects the property loan interest rate.
- IT returns
Tax returns may be regarded as a vital part of the loan application procedure and hence an essential parameter of loan against property eligibility. So, presenting IT returns from the last three to four years will attest to the borrower’s long history of consistent income. Most importantly, if these returns are inconsistent, this may negatively impact eligibility.
- Property insurance
A borrower can gain an advantage in the loan application if the property has the appropriate insurance. This will ensure the lenders’ faith in the borrower because they are confident that the property won’t eventually turn into an NPA (non-performing asset).
- Previous loan application rejection
The loan applications that have previously been turned down are kept on record by financial institutions and credit brokers. So, borrowers’ chances of getting a loan approved will be reduced if a loan application has been denied because it will show up on their credit report. Hence, you should only seek loans when necessary and refrain from doing so until absolutely required.
A co-applicant can be parents, children, or spouse. So, applying for a property loan with a co-applicant is advised for individuals if their credit score is comparatively low. This will boost the chances of receiving the loan and will enhance their eligibility. In this regard, they will need to co-sign the loan paperwork and give the lenders the necessary information.
So, before settling for a lender, it is vital to check the eligibility criteria and all the offers, including the pre-approved offers. This will ease loan application process and avoid any negative impact on eligibility criteria for loan against property. In addition, since a LAP involves collateral, borrowers must ensure not to exceed the repayment capacity.