A loan obtained by mortgaging a residential property is an excellent way to secure funds. The proceeds from such a loan can be utilized for both business and personal purposes.
When a loan is backed by a residential property, lenders are likely to offer favorable terms, especially if the property is self-occupied. The residential property being mortgaged must be registered in the name of the applicant or co-applicants and must be legally compliant with all relevant laws.
Additionally, the property should be marketable and free from any illegal structural modifications. It must also be located in areas approved by various lenders according to their lending criteria.
For self-occupied residential properties, lenders typically offer a maximum loan-to-value (LTV) ratio, which is determined by the borrower’s income and other lending criteria set by each lender. Properties that are rented out or vacant usually receive a lower LTV than self-occupied ones. Additionally, properties located outside municipal limits are often considered less favorably.
Both businesses and individuals can apply for these loans, with a maximum tenure of up to 15 years, depending on the borrower’s entry age, the residual age of the property, and the specific lending criteria of the respective lenders. The market value of the property used as collateral is usually assessed by valuers approved by the lenders.
For income eligibility calculations, both the borrower entity and co-applicants can be combined. The selection of eligible co-applicants varies among lenders, but generally includes blood relatives and spouses. State Bank of India (SBI) and other banks and non-banking financial companies (NBFCs) offer loans against residential properties, subject to the aforementioned conditions and their own lending or credit norms.