A loan against property is a highly popular borrowing option available in the market today. It is a secured type of loan and the collateral pledged must be in the name of the borrower. However, not many are aware of the fact that there are certain properties against which you cannot take a loan. The main criterion that lenders look at is the security of the money they lend. In case of a default in the payment, the financial institutions will take possession of the property and sell it to recover the amount due. Hence, lenders will always prefer lending to borrowers who have properties with a clear title.
Different kinds of properties against which lenders do/do not provide loans
There are different types of property against which you can obtain a loan and you need to have a detailed knowledge about the same before you apply for a loan.
Registered properties with a map
These are the safest properties for a lender. The property has a clear plan and a proper map. The lender will check the property for encumbrances, and once the lender is convinced there are no encumbrances, you can create an equitable mortgage in favor of the financial company.
Registered properties without a map
The lender will be cautious when financing against these types of properties. They will look for factors like an ‘Agreement to Sale’ or a registered sale deed. The property does not have a government approval and there could be problems when the lenders initiate recovery proceedings. Hence, lenders will insist on a co-applicant for the loan.
General Power of Attorney (GPA)
This is a legal document, which grants authority to an individual on behalf of another individual. The title of the property will not pass to the GPA holder and lenders will avoid financing against a GPA agreement because they will not get a clear title to proceed against the borrowers if there is a default.
Lal Dora Land
This is applicable only in Delhi NCR. It is a non-agricultural land and there are over 360 villages in Delhi, which come under Lal Dora. Financial institutions will not approve loans for the property that arises under Lal Dora.
It is not possible to get a loan against an agricultural land because the financial lender will not be able to convert it into a non-agricultural land and will find it difficult to recover the money.
The concept of reverse mortgage
Many financial institutions have a loan against property product wherein they approve loans for senior citizens against properties in their name. This allows them to live a decent life and the financial institution does not sell the property as long as the borrower or the spouse is alive. The financial lender pays them a specific amount each month and on their death, the lender will give an opportunity to the legal heirs to repay the loan. If they fail to do so, the lender will sell the property to realize the dues. This concept is known as a reverse mortgage.
You now know what financial institutions look at when you apply for a loan against property and how they make a decision to lend a loan and what stops them from providing finance.
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The lender will check the property for encumbrances, and once the lender is convinced there are no encumbrances, you can create an equitable mortgage in favor of the financial company.
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