Funding your educational goals, managing wedding costs, incurring unexpected medical expenses, witnessing rising costs on the upbringing of children, business expansion, etc. are financial obligations that may require massive financial assistance. A loan against property is a good solution to meet these monumental expenses. If you have a residential property to offer as collateral or security, you need a bank that offers a loan on favorable terms and after a hassle-free process. There are different types of loans for different purposes using a house like:
- Loan against the house for education
- Loan against the house for a wedding
- Loan against the house for repairs and renovation
- Loan against the house for expansion etc
To be able to avail of loans at attractive rates, you need to conduct research and compare that banks and lenders have to offer. And all this has to be done as soon as possible. On the other end, if you have to purchase a new house, lenders do not disburse loans that cover the full property value of your selected residential property. Some advance loans which is a mere 75% of the property value of the dwelling and some advance as high as 90% of the property value.
But before advancing these loans, lenders make sure to cover their bases and seek assurances in the form of security and margin money. This article seeks to explain concepts about margin money, down-payment and the time it takes for loan disbursement for your understanding
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How do you arrange a margin for a home loan?
Before advancing a home loan to a borrower for the intended purposes, a lender will demand the borrower deposit a certain sum of money called the margin money. The margin is the proportion of the value of the home not covered by the lender who provides the loan. It is a payment paid upfront to assure the lender about the financial stability and commitment of the borrower. When it comes to arranging money for this payment to be made, it is made possible by the following ways:
- You can use your savings/cash reserves to arrange for the margin money for a home loan.
- You can seek a “soft loan” from your employer or kith and kin which comes with a low rate of interest to arrange funds for the margin money.
- Some banks or lenders can offer a top-up loan or overdraft facility which allows you to make a payment towards the margin money.
When it comes to the deposit of margin money, the greater the amount you deposit, the lesser will be your liability towards the loan. Also, you can gain the favor of the lender which reduces the hassles in the process.
How long does it take to get a loan against property?
Banks and other lenders advance a large amount of money in home loans. For this reason, these entities remain cautious when dealing with borrowers. As such, from the application to the sanctioning of the loan, the lender will scrutinize all the details very carefully.
A bank may take from one week to ten days to sanction a loan against property. However, some entities like Bajaj FinServ Ltd. claim to disburse loans against property within 4 days post-approval of application with minimal documentation required and low EMI outflows. Another entity, IDFC First Bank claims to strive to complete the disbursal of loan amount against property within 72 hours of document submission. The process in IDFC Bank is also online.
What is the time required for home loan disbursement?
When it comes to the time taken for a home loan disbursement, before obtaining approval for the loan from the bank or lender, a borrower needs to get pre-approval from the same institution. However, such pre-approval also does not guarantee loan disbursement.
- It takes roughly three to four weeks for a home loan to be sanctioned and disbursed. This is because the loan approval process followed is very stringent.
- Many a time, there can be further delay in the sanction due to borrowers not complying with all the requirements of the bank or due to their inability to produce the required documents.
Therefore ensure that you have all the right and required documents with you for the smooth processing of your application and choose a lender which takes minimal processing time as such.
How can I buy a house with no down payment in India?
According to the prevailing regulations of the RBI issued in June 2017:
- The current Loan to Value ratio (LTV) for individual home loans can be financed to a maximum of 90% if the total loan amount is Rs 30 Lakh. For loans amounting from Rs 30 to 75 lakh, the LTV ratio can be up to 80% and loans above Rs. 75 lakh can be given up to 75 % of the value of the property.
- As such, buying a house with no down payment through a loan is not possible. The remaining value of the property not covered by the loan (equal to the value of the down payment) has to be borne by the borrower.
However, you can arrange the funds for the down payment with a personal loan which comes at cheaper interest rates than that of a home loan. It is also easier to avail a personal bank loan from a bank. Or you could take a soft loan from kith and kin with lower rates of interest to cover the down payment.
How much is the down payment on a house in India?
Loan to Value (LTV) ratio is the proportion of the residential property value which the lender’s approved loan will finance. A lender may finance 70% to 90 % of the property value.
- For instance, in 2017, the RBI issued a circular in June stating that for a loan value above 75 lakh, the LTV ratio would be 75%, which means that if a property is valued at Rs 100 lakh, the lender will risk financing 75 % of the value, i.e. to the extent of Rs. 75 lakh.
- As such, the down payment may range from 10% to 30% of the value of the residential property. The more substantial the percentage of the value of property not covered by the loan, the greater is the quantum of don payment to be paid.
You, the potential borrower, have to be careful when weighing the lending options provided by different lenders and select the one which covers the greatest possible extent of the property value of the residential property you want to purchase, but with competitive interest and other miscellaneous charges.
A home loan with favorable terms goes a long way towards the fulfillment of financial goals. Be it mortgaging your house for a loan against property or availing a home loan to purchase a new house, complying with lender requirements is of high priority to get your loan sanctioned as soon as possible. Payments made towards down payment can be made using methods that are less financially straining and likely to leave more money in hands in the future.
Documentation is an important part of the approval process of a loan application. The maintenance and presentation of the required documents may reduce the time taken for loan sanctioning and disbursement. The necessary preparations in the present for availing a home loan or a loan against property can ensure the fulfillment of financial goals in the future.
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