A loan against property is a means to leverage your property to fulfill your financial needs. Often, people believe that any type of property can be pledged for this loan. However, it isn’t true. When you avail a loan against a property, the evaluation and quality of your property determine whether your loan would be approved or not. Continue to read further and know the types of property you should avoid pledging in order to ensure your loan against property application does not get rejected.
What Is a Loan Against Property?
It is a secured loan where the lender lends you money when you pledge property as collateral with them. You can avail a loan against property for commercial, residential and industrial property. As these are secured, the interest rates of these loans are lower than a personal loan. If you meet all the loan against property eligibility criteria and have a good credit score, you can avail a loan of up to 75-90% of the property value.
Properties You Should Avoid to Pledge While Availing a Loan Against Property
To construct a property, the builder has to take several permissions from authorities. These permissions are related to the land on which the property is built, the number of floors, total sq. ft., etc. Therefore, when a property is built without adequate permissions, it is termed as illegal property. Even an additional balcony or floor, parking fence etc., can make a property illegal, giving the right to the municipality to demolish it. If you pledge such property as collateral, the lender can reject your loan against the property application. This is the reason lenders initiate a technical verification of the property to ensure that it has all the necessary permissions and approvals in place.
To avail of a loan against a property, you must have a clear title of the property. Disputes between builder and buyer or among the family members raise a red flag for the lender. If there are any disputes regarding the ownership of the property, you might face problems in getting your loan application approved. The property should be in your name, and there should be no legal records of dispute related to the property.
Old and dilapidated properties
To safeguard their interest in case of a default, lenders approve the loan amount based on the property valuation. If the property is too old, there are more chances of its construction being weak and damaged. Any property that can be difficult to sell is usually not approved by the lender. Therefore, if the property is too old or dilapidated, your application can get rejected.
Hence, make sure that the property you pledge is neither old, disputed nor illegal. This will help you avoid any loan rejections. The best solution is to get your property evaluated before you apply for the loan!