Loan Against Property (LAP) Explained: How to Use Your Home to Get Money

Introduction: The “Hidden Piggy Bank” in Your Home

Hello, and a very warm welcome to Fiknow!

For an Indian family, what is your biggest and most valuable asset? For most of us, it is our home.

We work hard for 10, 20, 30 years to buy our own “Makaan.” It is our “Griha,” our pride, and our family’s safety.

But did you know that your house is also your biggest “Emergency Fund”? It’s like a “hidden piggy bank” that you can use when you really need a large amount of money.

This is done through a special loan called a “Loan Against Property,” or “LAP.”

What is a Loan Against Property (LAP)?

In simple words, a LAP is exactly what it sounds like.

You already own a house or a shop.
You need money for a big, important purpose (like your child’s education, a big medical bill, or growing your business).
You go to a bank. You give your house’s original paper files to the bank as “security” (or “collateral”).
In return, the bank gives you a very large loan (e.g., ₹50 Lakhs) at a very cheap interest rate.
You keep living in your house, just like normal.
You pay the loan back in EMIs.¹ When the loan is finished, the bank gives you your house papers back.

A LAP is one of the cheapest and biggest loans you can get. But it is also the most serious loan, because your house is on the line.

This is your complete A-to-Z guide.

We will explain everything in simple, “5-year-old” language. We will not use difficult words. We will cover:

What is a LAP (with a simple “locker” story)?
LAP vs. Personal Loan: Why is LAP so much cheaper?
How much money can you get? (LTV Explained)
The 7-step guide to applying for the loan.
The Big Risk: What happens if you can’t pay?
The “hidden” charges you must ask about.

A Very Important Note (Disclaimer):

We at fiknow.com are here to give you knowledge. This article is for information and education only. It is NOT financial advice. A LAP is a 15 or 20-year promise. You are putting your family’s home as security. This is the biggest financial decision you can make. Please think 100 times and read all bank documents very carefully before you sign.

Ready to understand this powerful tool? Let’s begin.

Part 1: What is a LAP? (The “Locker” Story)

Let’s make this very simple.

A “Loan Against Property” is a “Secured Loan.”2

“Secured” means the bank is not scared. You are giving them a “security” that is very valuable: your house.

Imagine this story:

You have a box of very valuable jewellery (this is your house).
You need a lot of money.
You go to a bank and say, “Please keep my jewellery box in your safe locker.” (This is the “mortgage”).
The bank says, “Okay. This box is worth ₹1 Crore. I will give you ₹70 Lakhs in cash. I will keep your box safe.”
You take the ₹70 Lakhs and use it for your business.
You pay the bank back in small EMIs every month.
After 15 years, you pay the last EMI.
The bank manager smiles, shakes your hand, and gives you your locker key back. You take your jewellery box home.

That’s it.

The “Locker” is the bank’s vault.
The “Jewellery” is your house’s original paper files.
The “Locker Key” is the “No Dues Certificate” (NDC) you get at the end.

What a LAP is NOT:

It is NOT a Home Loan: A Home Loan is a loan you take to buy a new house.
A LAP is a loan on a house you already own. (You might have finished your home loan, or you might have built the house with your own money).

Part 2: LAP vs. Personal Loan vs. Top-Up (The Big Comparison)

This is the most important part for you, the borrower. Why should you choose a LAP?

Let’s compare it to a Personal Loan.

A Personal Loan is “unsecured.”3 The bank has no security, only your CIBIL score.

Here is why a LAP is so different:

Feature	Personal Loan (The “Fast but Costly” Loan)	Loan Against Property (The “Slow but Cheap” Loan)
Security	None. Based only on your CIBIL and salary.	Your House. The bank has your property papers.
Interest Rate	Very High (14% to 24% per year)	Very Low (10% to 12% per year)
Loan Amount	Small (₹50,000 to ₹20 Lakhs)	HUGE (₹25 Lakhs to ₹5 Crores)
Tenure (Time)	Short (1 to 5 years)	Very Long (10 to 20 years)
Approval Speed	Super-Fast (1 to 2 days)	Very Slow (7 to 15 days)
Processing Fee	High (1% to 2%)	High (0.5% to 1.5%)

Why is the LAP interest rate so cheap?

Because the bank is not scared! They have your house papers. The risk for the bank is very low. So, they give you their “best customer” interest rate.

What about a “Home Loan Top-Up”?

This is a “secret” third option.

What it is: If you already have a Home Loan that is active (e.g., you have been paying it for 5 years), you can call your bank and ask for a “Top-Up.”
How it works: Your house value has gone up. You have paid back some of your loan. The bank will give you an extra loan on top of your existing home loan.
Top-Up vs. LAP:
- A Top-Up is faster than a LAP (the bank already has your papers).
- A Top-Up is CHEAPER than a LAP! (Its interest rate is the same as your home loan, e.g., 8.7%).

The Fiknow.com Verdict (Which one to choose?):

Need ₹1-5 Lakhs FAST? A Personal Loan is your only option.
Need ₹5-15 Lakhs (and you have an active Home Loan)? A Home Loan Top-Up is the cheapest and best option.
Need a HUGE amount (₹25 Lakhs or more)? A Loan Against Property (LAP) is the only loan that can give you this much money for such a long time.

**Part 3: The “Money” Part: How Much Can You Really Get?**

This is the part everyone wants to know. “My house is worth ₹1 Crore. Can I get a ₹1 Crore loan?”

The answer is NO.

The bank will never give you 100% of your property’s value. They will only give you a part of it.

This is called the “Loan-to-Value” (LTV) ratio.

Step 1: The Bank’s “Valuation”

First, you cannot just tell the bank your house is worth ₹1 Crore.

The bank will send its own “Valuer”—an independent, expert engineer—to your house.

This engineer will inspect your house, check the building quality, the location, and the age.
They will write an official “Valuation Report” for the bank.
Example: You think your house is worth ₹1 Crore, but the bank’s Valuer says the real market value is ₹90 Lakhs.
The bank will only use the ₹90 Lakhs number.

Step 2: The Bank’s LTV Rule

Now, the bank will apply its LTV rule.

For a Residential Property (your house): Max LTV is 60% to 75%.
For a Commercial Property (your shop): Max LTV is 50% to 60%.

Let’s do the simple math:

Your Property’s “Valuation”: ₹90 Lakhs
Bank’s LTV: 70%
Calculation: 70% of ₹90 Lakhs = ₹63 Lakhs
The maximum loan you can get is ₹63 Lakhs.

Step 3: The “Income” Check (The Final Hurdle)

The bank says, “Okay, you are eligible for ₹63 Lakhs. But can you afford the EMI?”

The bank will now check your salary or business income.

The Rule of Thumb (FOIR/DTI): The bank will check all your current EMIs (car loan, personal loan, etc.).
Your new EMI plus your old EMIs cannot be more than 50% to 60% of your monthly take-home salary.
Example:
- Your take-home salary is ₹1 Lakh per month.
- Your 50% “limit” is ₹50,000.
- You already pay a ₹10,000 EMI for a car loan.
- So, your new EMI cannot be more than ₹40,000.
The bank will calculate: “How much loan can this person get if the EMI is ₹40,000?” (Answer: About ₹45 Lakhs).

The Final Result:

Your property was eligible for ₹63 Lakhs.
Your salary was eligible for ₹45 Lakhs.
The bank will always give you the LOWER of the two.
Your final sanctioned loan is ₹45 Lakhs.

This is how the bank stays safe, and how you stay safe from taking a loan you cannot pay.

Part 4: What Can You Use a LAP For? (The “Why”)

A LAP is a “big gun” in finance. You should only use it for big, important life goals.

1. Business Expansion (The Smartest Use)

The Goal: You have a small shop, and you want to open a second shop. You need ₹30 Lakhs.
Why it’s smart: You are using a “cheap” loan (LAP at 10%) to invest in something (your new shop) that will hopefully give you a higher return (e.g., 20% profit). You are using money to make more money.
Internal Link: For smaller business needs (under ₹20 Lakhs), you should always check if you are eligible for a https://fiknow.com/mudra-loan-small-business/ first, as it is a government scheme.

2. Child’s Higher Education (A Good Use)

The Goal: Your child gets into a top university in the USA or UK. The fee is ₹50 Lakhs.
Why it’s smart: An Education Loan might have a “cap” (a limit) of ₹20-30 Lakhs. A LAP can give you the full ₹50 Lakhs. You are investing in your child’s future.

3. Medical Emergency (A Good Use)

The Goal: A sudden, big medical surgery costs ₹25 Lakhs.
Why it’s smart: A LAP has a much lower EMI than a personal loan, which reduces your stress during a difficult time.
The “Con”: A LAP is slow (it takes 15 days).
Internal Link: For a super-fast emergency (you need ₹5 Lakhs today), a Gold Loan is a much better option. A gold loan is faster than a LAP. You can read our https://fiknow.com/gold-loan-guide-india/ to see how it works in 1 hour.

4. A Big Wedding (A Very Risky Use)

The Goal: You want a “dream wedding” for your daughter, and it costs ₹30 Lakhs.
Why it’s risky: We must be honest. This is a “bad” use of a LAP.
You are taking a 15-year loan (and risking your house) for a 3-day event.
You are starting your child’s new married life by giving them a huge “debt” (karz).
Fiknow Advice: It is much, much smarter to have a simple wedding than to risk your home.

5. Consolidating Debt (A “Pro-Level” Use)

The Goal: You have 3 credit card loans (at 36% interest) and 2 personal loans (at 18% interest). You are drowning in EMIs.
Why it’s smart: You take one LAP (at 10% interest) and pay off all those 5 expensive loans.
Now, you have only one cheap, easy EMI. This is a very smart move, but you must be disciplined and not use those credit cards again!

Part 5: The A-to-Z Application Process (A 7-Step Guide)

You’ve decided a LAP is right for you. Here is the step-by-step process.

Step 1: Get Ready (Your “Homework”)

Check your CIBIL: Is it 750+? If not, stop. Go fix it first.
Check your Income: Are you salaried or self-employed? Do you have the income proof?
Check your Property: Is your property “clean”? Do you have all the original papers? Is it registered in your name?

Step 2: Collect Your “Super File” (The Documents)

This is the most important step. A bank will not even talk to you without this file.

A) KYC Documents:

PAN Card
Aadhaar Card
Address Proof (Electricity Bill, Passport)

B) Income Documents (Salaried):

Latest 3-6 months’ Salary Slips.
Latest 2-3 years’ Form 16.
Latest 6 months’ Bank Statement (where your salary comes).

C) Income Documents (Self-Employed):

Latest 3 years’ Income Tax Returns (ITR) (with P&L, Balance Sheet).
Latest 12 months’ Business Bank Statement.
Business Proof (GST Registration, Udyam, Shop License).

D) The Property Documents (The “Locker”):

The Original Sale Deed / Title Deed (the paper that proves you are the owner).
The “Chain” of Papers: (All the old sale deeds, if any).
Latest Property Tax Receipt (proves you have paid your tax).
“Khata” or “Patta” (The government record of the property).
“Approved Building Plan” from the municipality.

Step 3: Go “Loan Shopping” (Compare Banks & NBFCs)

Do not just go to your salary bank. You must “shop” for a 15-year loan!

Go to 3-4 Lenders:
1. Your Bank (e.g., SBI)
2. A big Private Bank (e.g., HDFC)
3. A big NBFC (e.g., Bajaj Finserv or L&T Finance)
Ask these 4 questions:
1. “What is your best Interest Rate (APR)?“
2. “What is your Processing Fee? (Can you make it zero?)”
3. “What are your Pre-payment Charges?” (Should be ZERO for floating).
4. “What LTV will you give me?”

Step 4: Submit Your Application & Fees

You choose the best bank.
You submit your “Super File” and the application form.
The bank will ask you to pay the “Login Fee” or “Initial Processing Fee.”
Warning: This fee is for the “Legal & Valuation” check. This fee is NON-REFUNDABLE. Even if your loan is rejected (because your property papers are bad), you will not get this ₹5k-15k back.

Step 5: The “Legal & Valuation” (L&V) Process

This is the “waiting” period. It can take 7-10 days.
Legal: The bank’s lawyer will check your property papers. They will do a “Title Search” to see if the property is “clean” (has no other loans or court cases).
Valuation: The bank’s engineer will visit your house to check its condition and value.⁴

Step 6: Get the “Sanction Letter”

The L&V reports are “Clear”!
The bank will now give you a “Sanction Letter.”
This is your official loan offer. It is a 1-2 page document.
READ THIS CAREFULLY. It will show:
- The Final Loan Amount (e.g., ₹45 Lakhs).
- The Final Interest Rate (e.g., 9.8% floating).
- The Tenure (e.g., 180 months).
- The EMI amount.
- All the fees and charges.

Step 7: The “Mortgage” & Disbursement

This is the final step.
You (and all co-owners of the house) go to the bank.
You sign the main “Loan Agreement” (a 50-page file).
You hand over your ORIGINAL Property Papers to the bank manager.
Mortgage Creation: You may have to go to the Sub-Registrar’s office with the bank’s lawyer to create a “legal mortgage” on the property. This is a legal step.
Disbursement: The bank is now satisfied. They will transfer the ₹45 Lakhs to your savings account.
Your EMI will start from the next month.

Part 6: The “Cost” Part: Interest Rates & Hidden Fees

What is the real cost of a LAP?

1. Interest Rate (Floating)

As we saw in Part 2, the rate is low (10-12%).
99% of all LAPs are “Floating” rate.
This means your interest rate can change (go up or down) when the RBI changes its Repo Rate.
This is normal and transparent.

2. “Hidden” Fees (The Fine Print)

You must ask about these 4 fees.

Processing Fee:
- Cost: 0.5% to 1.5% of your loan amount + GST.
- On a ₹50 Lakh loan, this is ₹25,000 to ₹75,000!
- Pro Tip: This is highly negotiable. If you have a good CIBIL and income, tell the manager, “Please make this 50% off.”
Legal & Valuation Fee:
- Cost: ₹5,000 to ₹15,000.
- This is a separate fee. It is non-refundable.
Stamp Duty (on Mortgage):
- Cost: This is a big hidden cost. It’s a state government tax.
- It can be 0.2% to 0.5% of your loan amount.
- On a ₹50 Lakh loan, this is an extra ₹10,000 to ₹25,000 you must pay.
Pre-payment Penalty (The “Trap”):
- The Trap: You get a bonus of ₹5 Lakhs. You want to pre-pay your loan. The bank charges you a 4% “penalty” (e.g., ₹20,000).
- The RBI Rule: This is very important.
  - If you are an “individual” (a person) and you took a FLOATING rate loan, the bank CANNOT charge you any pre-payment penalty.
  - If you are a “company” or you took a FIXED rate loan, the bank can charge you this penalty.
- Action: Make sure you take a “Floating” rate loan.

Part 7: The BIGGEST Risk: What If You Can’t Pay?

We must talk about this. This is the E-E-A-T part.

A LAP is a serious loan. The bank has your house.

What happens if you miss your EMIs?

You miss 1 EMI:
- The bank will charge a Late Fee (e.g., ₹500 + 2% extra interest).
- Your CIBIL score will drop.
- You will get a reminder SMS and call.
You miss 2 EMIs:
- The bank will charge another late fee.
- Your CIBIL score will drop again.
- The calls from the bank will become more serious.
You miss 3 EMIs (90 Days Late):
- This is the “Red Line.”
- The bank will legally declare your loan as an NPA (Non-Performing Asset).⁵
- This destroys your CIBIL score for 7 years.
- You will now get a formal Legal Notice from the bank’s lawyer.
After the Legal Notice (The “SARFAESI Act”):
- The bank will use a law called the “SARFAESI Act.”
- This law gives the bank the power to sell your house to get its money back.
- They will send you a notice giving you 60 days to pay the full outstanding amount.
- If you cannot pay, they will send a “Possession Notice.”
- They will then print an Auction Notice in the newspaper and sell your property.

This sounds scary. And it is.

This is why you must be 100% SURE that you can pay the EMI every month. A LAP is not a “game” or an “experiment.” It is for responsible, stable borrowers only.

Conclusion: A Powerful Tool, Not a Toy

You are now an expert on Loan Against Property.

You know that your house is a powerful “piggy bank.”

A LAP is one of the best loans you can get:

It is HUGE: You can get ₹50 Lakhs or more.
It is CHEAP: The interest rate is low (10-12%).
It is LONG: You can pay it back over 15-20 years, so the EMI is small.

But you also know that it is a serious, high-stakes loan:

It is SLOW: It takes 15 days because of the Legal & Valuation checks.
The RISK is your HOME: You must never miss an EMI.

Our Final Fiknow.com Advice:

Only use a LAP for “asset-building” goals:
- ✅ Good Use: Business, Child’s Education.
- ❌ Bad Use: Holiday, new car, or a fancy wedding.
Always be 100% sure you can afford the EMI.
If you only need a small amount (₹1-5 Lakhs) for a quick emergency, a Gold Loan is a much faster, safer, and better option.

Frequently Asked Questions (FAQ) Section

Q1: What is the minimum CIBIL score for a LAP?

A: Because it is a “secured loan,” the CIBIL rule is a little more relaxed than a personal loan. But good banks will still want a minimum CIBIL score of 720-750.

Q2: Can I get a LAP on an empty plot of land?

A: Mostly, no. Most banks (like HDFC, ICICI) will only give a LAP against a constructed property (a house, flat, or shop). A few NBFCs might give a “Loan Against Land,” but it is rare and the LTV is very low (40-50%).

Q3: Can I get a LAP on my parents’ house?

A: Yes. But your parents (who are the owners) must become “co-applicants” for the loan. The loan will be in all your names.

Q4: Can I sell my house if I have a LAP on it?

A: Yes, but it is a 3-step process.

You must tell the bank you want to sell.
The buyer of the house will pay the loan amount directly to the bank.
The bank will “close” the loan and give the original property papers to the new buyer.
The remaining profit (Sale Price – Loan Amount) will be given to you.

Q5: What is the difference between a Home Loan and a LAP?

A: A Home Loan is a “purchase” loan.6 You use it to buy a new house. The bank pays the builder. A LAP is a “multipurpose” loan. You take it on a house you already own to use the money for anything else (like business or education).

Q6: How long does the LAP process take?

A: Be patient. It is slow. Because of the detailed Legal and Valuation checks, it usually takes from 7 to 15 working days (2-3 weeks).

External Links (For Your Own Research)

We want you to be 100% informed. Please check these official websites.

Reserve Bank of India (RBI) – Fair Practices Code:
This is the official RBI page that tells all banks how to treat customers fairly. It’s good to know your rights.

(https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=11208&Mode=0)
RBI – Master Circular on Customer Service:
This document outlines your rights as a borrower.

(https://www.rbi.org.in/Scripts/BS_ViewMasCirculardetails.aspx?id=9862)
SBI Loan Against Property (Bank Example):
This is an example of a bank’s LAP page. You can see their interest rates and use their EMI calculator.

(https://sbi.co.in/web/personal-banking/loans/property-loan/loan-against-property)
HDFC Loan Against Property (Bank Example):
Another major bank’s page, so you can compare offers.

(https://www.hdfcbank.com/personal/borrow/loans/loan-against-property)