How to get a loan on a let-out property? Eligibility, Interest rate, Tenure Explained:

By Abhay Shah, Realty Quarter

Nearly all the public sector and private banks provide loan for potential rentals. With this component, the owners of a house can take advantage of a credit line based on the rent received on the house property.

Eligibility criteria for Individuals:

Anyone who owns a commercial or residential estate may obtain the benefits of this scheme. The property may be owned jointly or by a single owner. All owners will have to become loan applicants in the event of joint ownership. This loan scheme option is available for properties that have already been rented out or for which a lease contract has been concluded.

Loan amount utilisation:

The fund raised through the loan against potential rents can be used for any intent – from purchasing a home or extending your business to your children’s wedding or education. You can also use the funds for the property’s repair or renovation. You can even use the funds obtained to repay a current loan.

Eligible criteria for Properties:

This loan can be used for a commercial property that has been let out or leased to a prestigious lessee, such as a government enterprise, bank, insurance firm or big retail house. Normally, lenders have a pre-approved list of such organizations. One can take advantage of this scheme, even for a housing property that is let-out, only if you have an agreement for a duration that at least includes the loan’s repayment against rentals. In addition, it may suggest that you have the lease/rental contract duly registered before the bank sanctions the loan against potential rentals.

Required Documents

In relation to the duly completed application form, the bank will ask you to provide the essential KYC (know your client) documents such as address proof and identity proof. The lender will also demand that your repayment capability be established for proof. Form No 16 will be sufficient for salaried people in the event that the income tax return (ITR) is not available. However, the self-employed applicants have the obligation to submit an audited account and you have to submit the ITR form over the last two or three years in case of the accounts have not been audited. While the cash is being provided against future rentals, lenders wish to ensure themselves about your ability to repay if something occurs in the lease.

Security

The loan shall be secured through a charge on the loaned estate. Consequently, if you already have a current house loan, you will find it hard to get this loan from any other lender because they will not be prepared to bring a second charge on the advanced money. In such situations, under the conditions of the margin requirements of the lender, you may offer any other property as security for the rental loan.

However, if the value of the estate has improved significantly, after disbursement of the original house credit, your current home loan lender may favourably regard your rental loan.

Interest & Loan Tenure

Lenders usually take up to 1% of the loan amount as a processing fee. The Interest differs, depending on the borrower’s profile and across lenders. The present interest rate ranges from 10% to 13% per annum. The loan is granted for a total of 10 years against rentals.

The tenure of the loan, however, can not exceed the lease agreement’s residual duration. Additionally, your credit history must be great for the availability of any credit facility, including the loan against rent. Otherwise, getting the credit may be hard for you.