Summary of this article
The property on which the rental income is generated should be owned by you.
Most banks only provide loans against commercial property. However, some lenders also approve loans against residential properties.
One of the biggest advantages of such loans is that you do not have to liquidate your asset.
You can avail loans against rental income generated by properties you own. Loan against rental income allows you to use the rent received from your property to raise funds for various expenses such as home renovations or to invest.
Rental income loans allow you to use the rental income earned from your property as collateral against the loan amount. “These loans are offered by banks, non-banking finance companies (NBFCs) and housing finance companies (HFCs). Lenders typically evaluate your property and offer loans at a certain percentage of the monthly rental income your property is expected to generate,” says Adhil Shetty, CEO, Bankbazaar.com.
Following is a step-by-step guide to rental income loans.
Eligibility Criteria
* Owning of Property: The property on which the rental income is generated should be owned by you. Preferred by lenders are those property which have been rented out for a stipulated minimum period and have regular rental income.
* Creditworthy and valuation: Similar to other types of loans, your credit score and credit history impact your loan eligibility as well as the loan amount and the rate of interest you can get. Valuation of property might be required by lenders.
Documents Required
* Check your eligibility and gather documents: You need check if you are eligible as per the criteria of lenders. “Eligibility criteria include ownership of property, regular rental income of property, your creditworthiness and valuation of property. Documents required include property documents, rent agreement, bank statements, income tax returns, identity proof, address proof and photographs of the property,” says Shetty.
* Apply for loan and property verification: Apply for the loan to your desired lender. Submit all the required documents along with the loan application form. The lender will conduct a property verification for the market value of the property and its rental potential.
Most banks only provide loans against commercial property. However, some lenders may approve loans against residential properties. Some banks also have a criterion that the property should be rented out to a reputed company/firm. These criteria differ from bank to bank and NBFCs and HFCs that you apply to.
Loan Approval
“If your documents and property check satisfy the lender and you meet their eligibility criteria, the lender will approve the loan amount and you might be required to pay processing fees. Post approval, the loan amount will be disbursed to you in a lump sum or in instalments as agreed upon,” says Shetty.
Things to Keep in Mind
Maintain proper documentation of your rental income and outgoings as the lender may ask for it.
Compare loans offered by multiple banks, NBFCs and HFCs to avail loans at the lowest interest rates and better terms.
Read the loan agreement carefully and understand the interest rate, tenure, foreclosure charge and prepayment charges.
Have a repayment plan in place to ensure you don’t default on your loan payments as it will negatively impact your credit score.
One of the biggest advantages of such loans is that you do not have to liquidate your asset. You can use the regular rental income that your property generates to avail a loan and use it for various purposes like renovating your home, making investments, clearing your child’s education fees or simply utilising the loan amount to meet your short-term financial requirements. This helps you utilise your property for your financial needs without parting ways with it.
By using rental income as loan collateral, you can gain access to funds while still keeping ownership of your property. Make sure to do your research before applying for a loan.
