An overdraft loan against property allows homeowners to get a credit line by keeping their property as collateral with the loan provider. Typically, financial institutions provide overdraft facilities up to a certain percentage of the property's market value.
This facility is suitable for managing fluctuating cash flow requirements, as borrowers can withdraw funds up to the sanctioned limit whenever needed. Interest is charged only on the amount actually withdrawn, not on the entire overdraft limit. Let us understand the key aspects of overdraft loan against property eligibility, required documents, and the application process for overdraft loans against property.
Eligibility Criteria
The eligibility criteria to avail of an overdraft loan against property may vary across banks, non-banking financial companies (NBFCs) and lending institutions. However, some basic property overdraft loan criteria are usually considered:
- Age: The minimum age for applying is generally 21 or 23, while the maximum age at loan maturity is usually 65.
- Property: The property against which the overdraft is availed should be located in an approved location and meet the loan provider's valuation criteria. Both residential and commercial properties can be offered as collateral.
- Ownership: The property should be completely owned by the applicant applying for the overdraft loan. In case of joint ownership, the consent of all co-owners is required.
- Income and credit profile: The loan provider may stipulate minimum income levels for the applicants. A good credit score and timely repayment of existing loans also help.
Documents Required
Key documents needed for an overdraft facility against property include:
- A duly filled loan application form along with photographs.
- Identity and address proof like Aadhaar card, voter ID, passport, etc.
- Proof of ownership of the property, like a sale deed, allotment letter, etc.
- Approved building plan and completion certificate for new constructions.
- Latest property tax receipts, electricity and water bills.
- Income documents include salary slips and ITRs for salaried employees and ITRs for self-employed employees, bank statements, profit and loss statements, etc.
- Bank statements reflecting financial transactions.
- Credit reports from CIBIL/Experian will be used to assess past loan repayment behaviour.
- Quotes for property valuation from government-approved valuers.
The above list of documents is indicative and may vary as per the lending institution's specific requirements. Applicants should check with the bank or NBFC beforehand.
Loan Against Property Overdraft Application Process
Here is the step-by-step guide to apply for LAP overdraft:
Step 1: Identify Property
The first step is to identify the property that the applicant owns and wishes to offer as collateral for the overdraft.
Step 2: Check Eligibility
Next, the applicant should assess their eligibility for a property overdraft loan based on the loan provider’s criteria regarding age, income, employment stability, credit score, etc. Online eligibility calculators can provide an initial estimate.
Step 3: Collect Documents
Subsequently, the applicant needs to gather all the relevant documents as per the lender's documentation checklist. Property valuation quotes should also be obtained from approved valuers.
Step 4: Submit Application
The applicant can submit the duly filled loan application form along with Know Your Customer (KYC) and property documents either online or through the bank or NBFC branch.
Step 5: Property Valuation
The lending institution will undertake technical and legal verification of the property documents and valuation by internal or external valuation experts.
Step 6: Loan Appraisal
The final loan eligibility amount and other terms are decided based on the applicant's profile, income, creditworthiness, property value, lender's risk policies, etc.
Step 7: Approval and Disbursal
The loan provider then conveys the in-principle approval for the overdraft loan against property along with the applicable interest rate, processing fees, etc. Finally, loan amount disbursal happens once all formalities are completed from the applicant's end.
Prepayment and Foreclosure Rules
Many banks and NBFCs allow prepaying the overdraft loan outstanding anytime without any penalties. Some charge a nominal foreclosure fee on the outstanding principal. However, check any specific conditions regarding foreclosure and switching loans with the concerned lender.
Conclusion
Overdraft loans against residential or commercial property permit withdrawal of cash up to a specific limit, with the property held as collateral. The primary eligibility parameters centre around the applicant's age, stability of income, creditworthiness and property value. Once the required documents are gathered, one can fill out the application form online or offline. The loan provider performs property assessments before passing on the approval and the ultimate loan sum that may be authorised. Overdrafts, therefore, have more repayment convenience than conventional property loans. Exploring a loan against property with Shriram Finance gives you access to flexible solutions and ongoing support, designed to complement your evolving financial needs.
