Navigating the Loan Against Property (LAP) Journey: Raj’s Story

Introduction

Raj is a small business owner from Tamil Nadu with big dreams. Raj owns a modest yet valuable property in the bustling city of Chennai. He’s been running his business successfully for a few years, but now he wants to expand. Raj’s ambition is to open a second store, but he lacks the necessary funds. That’s when he hears about a Loan Against Property (LAP). This is Raj’s journey of navigating through the process of obtaining a LAP to fulfil his dreams.

Understanding Loan Against Property

What is LAP?

Raj learns that a Loan Against Property is a secured loan where one can mortgage their residential or commercial property to avail funds. The amount sanctioned is typically a percentage of the property's market value. Raj is intrigued; this seems like a viable way to get the substantial funds he needs.

What is the difference between “Home Loan” and “Loan Against Property”

Home Loan Vs Loan Against Property

Benefits of LAP

Raj finds out the benefits of LAP:

Lower Interest Rates: Compared to personal loans or credit cards, LAP offers lower interest rates since it's a secured loan.
Longer Tenure: Repayment periods can extend up to 15-20 years, making EMIs manageable.
Large Loan Amount: He can get a higher loan amount as it’s based on the value of his property.
Continued Use of Property: Raj can continue to use his property even after mortgaging it.

Loan to Value Ratio (LTV)

Raj also comes across the term Loan to Value Ratio (LTV) which plays a crucial role in determining the loan amount. LTV is the ratio of the loan amount to the market value of the property. For instance, if a bank offers an LTV of 60%, it means Raj can borrow up to 60% of his property's market value.

Understanding LTV is vital because:

LTV Limits: Different lenders have varying LTV limits, usually ranging from 50% to 80%. A higher LTV means a higher loan amount but also indicates a higher risk for the lender.
Impact on Loan Amount: A lower LTV might mean Raj needs to find additional funding sources or adjust his business expansion plans.
Interest Rates and LTV: Sometimes, a higher LTV can attract slightly higher interest rates as it signifies more risk.

Step 1: Research and Preparation

Evaluating the Property

Raj begins by getting his property evaluated. He contacts a few local real estate agents and even checks online property portals to understand its current market value. This step is crucial as the loan amount will be based on this value.

Gathering Documents with LANDEED

Raj prepares the necessary documents, but he knows that obtaining all the required paperwork can be a hassle. Fortunately, he discovers LANDEED. Using LANDEED, Raj easily gathers:

Property Papers: Clear title deeds, proof of ownership, and any existing loan documents on the property.
Personal Documents: Identity proof, address proof, and photographs.
Income Proof: Bank statements, income tax returns, and business financials.

The LANDEED app simplifies the process by providing a digital repository(Locker) where he can upload and organise all his documents. Raj feels relieved that he doesn’t have to chase multiple departments for these papers.

Using LANDEED’s Property Loan Estimator

Raj also utilizes the LANDEED’s property loan estimator feature. By entering his property details, he is able to:

Check Maximum Loan Amount: The app estimates the maximum loan he can avail based on the LTV ratios of different lenders.
Total Repayable Amount: It calculates the total amount repayable, including interest, over the loan tenure.
Monthly EMI: Raj can compare the monthly EMI he would need to pay for different lenders, helping him choose the most suitable option.

Landeed's Loan Estimator against Property

Step 2: Choosing the Right Lender

Comparing Lenders

Raj compares various banks and financial institutions. He looks at:

Interest Rates: He finds that rates vary slightly between lenders.
Processing Fees: Some lenders charge a higher processing fee.
Loan Tenure and Conditions: Flexibility in repayment and pre-payment options.
LTV Ratio: He carefully notes the LTV ratios offered by different lenders.

Interest rates for various banks

Interest Rates for various Housing Finance Companies (HFCs)

Meeting the Lender

Raj finalises on one particular bank that offers him an attractive package with reasonable interest rates, flexible repayment options, and an LTV ratio of 65%.

Step 3: Application, Disbursement, and Repayment

Filling the Application

Raj decides on a lender and fills out the application form. He ensures all details are accurate and submits the necessary documents.

Property Valuation and Legal Check

The bank initiates a property valuation and a legal check to ensure everything is in order. This includes verifying the property's title and assessing its market value. Raj’s property gets a clean chit, and the valuation meets his expectations.

Loan Approval and Disbursement

After a thorough evaluation, Raj's loan is approved. With an LTV of 65%, the bank offers him a substantial amount that covers his business expansion plans. The loan amount is disbursed into Raj’s account. He feels a sense of relief and excitement as he now has the necessary funds to turn his dream into reality.

Conclusion

Raj’s story is a testament to how a Loan Against Property can be a powerful financial tool for those in need of substantial funds. With proper understanding and careful planning, LAP can help turn dreams into reality without losing ownership of one's cherished property. Raj was able to get the desired loan amount easily and successfully expand his business using tools like LANDEED. If you, like Raj, have dreams waiting to be fulfilled, consider LAP as a viable option and embark on your journey with confidence. And remember, tools like the LANDEED app can significantly simplify the process, making your journey smoother and more efficient.