How to manage your finances with the property you own

Savings is our part of life. Right from childhood our parents teach us the value of savings time-on-time basis so that you utilize it during any emergency in future. No matter how meticulously an individual saves, at times when your finances are strained you’ll need some help to tide over safely on to the shore. Borrowing from family or friends is an alternate option but again there is fear of rift is associated if not paid on time. If the money you need is large such as for child education, sending them for higher studies, medical treatment, or other emergency it becomes stressful to manage finances. Relax! A better option would be to leverage an asset you own – your house.

Today, leading banks and finance companies offer loan against property (lap) so that you can use your house as collateral to take a loan from a bank.  LAP is given against the mortgage of property. It is provided at a certain percentage of your property’s market value. It usually stands around 40 to 60% of your property value in the market. Property loans help you leverage the economic worth of your home along with continuing to enjoy occupancy of the same, so that you get immediate finance to meet a variety of personal and business needs.

Loan against property are avail for fully constructed, freehold residential and commercial properties for: business needs, marriage, medical expenses and other personal needs. You may also transfer your outstanding loan availed from another bank / financial company.

In today’s time traditional finance come at extremely high rate of interest, stringent measures to pay and less time duration to clear of the debt. But taking a loan against property is certainly cheaper than a traditional loan, where interest rates are as low as 10 to 13%.  Since these are secured form of loans you can get a higher amount than the one you will get for an unsecured loan like a personal loan. Ofcourse, every bank will also have small processing fee of around 0.50% of the loan amount. For better understanding you can always visit relevant site and make sure the mandatory documents are available at the earliest for application.

The loan offered by a bank will vary from person to person since it depends on various factors, including the work profile and age of the borrower. Typically, the income proof for three years is required to have the loan against property and the minimum age is around 24 years. Lenders prefer that the loan be fully repaid while the borrower is employed, so the maximum age till loan maturity in case of a salaried person is 60 years and for self-employed its 65 years.

Your credit history counts a lot when it comes to avail property loan. It is extremely important that you have a good credit score rating to avail any form of loan. Before, lending out the loan, banks have a background check of your credit history through a Credit Information Company like CIBIL (Credit Information Bureau India Ltd.) and go through your repayment track record. Based on your credit score banks will ascertain your repayment capacity. Your defaulting on any bill payment will reduce your chances of getting a loan. After the bank is satisfied with the paperwork, it will offer you the loan, which will typically range from 40-70% of the value of the property.

Taking the Home Loan Path: 5 Common Mistakes

You may choose to take out a home loan when buying a property for a number of reasons. It could be because you do not have that kind of money and you can earn well enough to pay off your EMI, or it could be that you have the money but you want to use it to make more money and faster than the interest rates. Whatever the case may be, if you plan to take out a home loan, you are prone to a couple of pitfalls.

Once you are aware of these five common mistakes, you will have a better idea of how to go about taking the home loan path to buying your house.

Ignoring Your Cibil Score

Cibil is an agency that rates your creditworthiness, as in, they give you a score out of 900 to indicate how much should banks trust you in loan matters. Knowing this score can be a bargaining tool for you. If you have a good score, one that is above 700, it will give you more options to negotiate for better loan terms. You can ask Cibil directly to provide your Cibil score to you.

Applying for Other Loans as well

So you're looking for a home loan but are simultaneously applying for other loans as well, like personal loans and credit cards. It does look poor on you as you'll look 'Credit Hungry' and Cibil and the banks will usually blacklist you as a financial risk. When taking a Loan against Home, make sure you free up all other loans six months prior and just focus on the home loan.

Picking the Wrong Bank

It is easy to just go with the bank you are most familiar with, when the truth is that you could have found a better deal elsewhere. Do not shy away from looking for more options. Go to as many banks as you can and even ask your friends and family which bank they chose for their loans and why. There are more factors to consider than just offered interest rates, such how their services are, what their system of calculating fluctuating interest rates is, etc.

Ignoring Pre-Approval from the Bank

Do not ignore the pre-approval on your loan as banks offer it willingly and for free. Getting a pre-approval from your bank will cut down on the overall time, and makes the processing of your loan much easier when the time comes.

Getting Attracted to Big Loans

Bigger is not always better when it comes to home loans. Just because a bank offers a bigger loan doesn't mean you should take it. Sure, you could buy a bigger house, but you will also carry a bigger burden. When taking a home loan, your goal should be to nullify it as soon as possible. So get a lower home loan, pay a higher EMI for a shorter tenure.

[Source: http://ezinearticles.com/?Taking-the-Home-Loan-Path:-5-Common-Mistakes&id=8519786]

Backing Up Your Loan with Property

Yes. Most lenders will require you to give them a contact address. But let's ignore that for now. If you actually happen to own your home then clearly you are unlikely to up sticks and leave with your creditor trying to work out where you, and more importantly to them: their money, have gone to. If you want to get an affordable loan, the secured loan would be the best way to go. Not only does it mean to the creditor that you are easy to contact, it also shows that you are far more likely to be a responsible borrower of money. Bearing in mind that most homeowners either have or did have a mortgage at some stage, they will likely have had to make monthly (or otherwise) repayments in the past, so it gives the creditor a sense of comfort that, based on past results, you're more likely to be a trustworthy borrower.

But what if you are not a homeowner? How your loan securing chances would be affected? Given that you're living somewhere relatively permanent, but don't actually own the property yourself, you may find that you lack much to secure your loan on. What's the problem with this? Well, let us say that you do not own any property. What this shows is that your financial standing is a lot lower than that of somebody who does. This means that, should you end up - despite your best efforts and intentions - getting further and further in to debt so that you're unable to pay back the Loan on Property , you have little to act as a buffer (like your property) with which the creditor can start looking at. The lender will regard you as being a high risk candidate if you do not own property. So how do they make up for that?

What they do is that they charge you a significantly higher level of interest. And later, should things start going wrong, they will probably be a lot less understanding. So, inversely, if you actually happen to be in the position of owning a home, you are a far more stable and likely candidate for the creditor's best loan deals.

And what if your home is owned by your partners? In that case, it can sway the balance just enough if your credit record isn't without its patchy areas. If that's the case, you have two simple options to taking out a loan to make the most of that fact. Ensure that the creditor is aware of whom you happen to live with (and that they own the home, not you); or simply ask them to take out the loan for you. The latter might be a good idea even if you could get the loan on your own steam. After all, your partner could get a better deal.

In the long run, it's all down to who's willing to sign on the line and what they have available to back up their loan with (combined with their credit history). Bear that in mind when trying to find quotes for relatively small loans in future. There are many ways in which you can get hold of a cheaper loan. Stay open to various options.

[Source: http://ezinearticles.com/?Backing-Up-Your-Loan-With-Property&id=871915]

Personal loan or loan against property: Which one is better?

What is personal loan? Personal loan as the name suggests, is an unsecured loan that you can raise from bank for your personal use. 

There are no restrictions on the proceeds of the loan amount – you can use it to pay off your debt, construct a house, set up your business or even for your wedding etc. What is loan against property? A loan against property (LAP) is a secured loan disbursed against the mortgage of the borrower’s property. It can be residential property (either self-occupied or a rent), commercial property or even a piece of land.

Just like a personal loan, there is no restriction on using the proceeds of an LAP. You can use the LAP proceeds to finance your child’s education and wedding, to build a home for yourself, to meet medical expenses, to buy personal or commercial vehicles and even to finance your business. How to choose between the two?

Processing time: As a loan against property is obtained by mortgaging the borrower’s property, the lender has to verify related documents before disbursing the loan. The lender may also undertake technical study to confirm the ownership of the property and find out its market value. In addition to this, you will be asked to submit documents supporting your income to judge your loan repayment capacity.

This entire process can take anywhere between 15 to 30 days and hence, Loan against Property is not suitable for those seeking quick disbursal of loans. Personal loans on the other hand, do not require any collateral. Lenders usually judge your application on the basis of your monthly income and credit score and hence, your application may get approved within 7 days.

Interest rates: Being a secured loan, the interest rates of LAP is usually lower than that of personal loan. This can be anywhere between 11% and 16%. In comparison, interest rates of personal loan can be as high as 24%.

The main factor determining the interest rates in personal loans is the borrower’s credit score. LAP will suit those who are unable to get a good personal loan deal because of poor credit scores.

Tenure of loan: In case of LAP, the loan tenure can be as high as 15 years whereas the upper limit of personal loan is usually around 5 years. 

The longer tenure of loan repayment brings down EMI payouts, which increases the affordability of big-ticket loans. However, the flip side is that the longer tenure would also result in higher interest payout.

[Source: http://www.moneycontrol.com/news/loans/personal-loan-or-loan-against-property-which-one-is-better_6365581.html]