Nowadays, there are so many finance options available when you want funding for your project. And among those options, two of the popular ones are property-based. These are home loans and loans against property. While these are two totally different loans, some people are still confused between them.

Both home loans and loans against property real estate, yet serve different financial needs. A home loan is strictly for purchasing or constructing residential property, offering longer tenures and tax benefits. In contrast, a loan against property allows you to mortgage owned real estate—residential or commercial— to secure large funds for any purpose.

This blog will serve as a guide to the difference between a home loan and a loan against property. So let’s get straight into it.

What is a Home Loan?

A home loan is a secured loan specifically designed to help individuals purchase, construct, or renovate a residential property. The property itself serves as collateral, reducing the lender’s risk and typically resulting in lower interest rates compared to unsecured loans.

Key Features of a Home Loan

  • Purpose: Only for buying, building, or renovating a home.
  • Loan Tenure: Long-term (up to 30 years in some cases).
  • Interest Rates: Generally lower than personal loans or loans against property.
  • Tax Benefits: Eligible for deductions under Section 24(b) (interest) and Section 80C (principal repayment).
  • Loan-to-Value (LTV) Ratio: Usually up to 75-90% of the property’s value.

Home loans make property ownership accessible through structured EMIs. That makes them a preferred choice for aspiring homeowners.

How to Apply for a Home Loan?

Applying for a home loan involves a structured process to ensure eligibility, affordability, and timely disbursement. Here’s a step-by-step guide:

Step 1: Check eligibility & credit score

Lenders assess income, age, employment stability, and credit score (ideally 750+). Use online eligibility calculators to estimate loan amount and EMI.

Step 2: Research and Compare Lenders

Compare interest rates (fixed vs. floating), processing fees, prepayment penalties, and loan tenure across banks/NBFCs.

Step 3: Gather Required Documents

The most important part of the loan application process is gathering the necessary documents. 

  • Identity/Address Proof: Aadhaar, PAN, passport.
  • Income Proof: Salary slips (salaried) or ITR + balance sheets (self-employed).
  • Property Documents: Sale agreement, title deed, NOC (if applicable).

While these are absolutely necessary, there may be more stipulated by particular banks.

Step 4: Submit Application

Apply online (bank website/aggregator) or offline (branch visit). Pay the processing fee (a percentage of loan amount) as set by the lender.

Step 5: Property Verification & Loan Approval

Lender evaluates property legality, valuation, and technical feasibility. Approval typically takes 3–7 days post-document submission.

Step 6: Sign Agreement & Disbursement

Upon approval, sign the loan agreement. Funds are disbursed directly to the builder/seller (for purchase) or in stages (for construction).

A well-planned application improves approval chances and secures favorable terms. But make sure to always read the fine print before signing. With Nihal Fintech, you get easy home loans with a transparent process for application repayment, and even prepayment.

What is a Loan Against Property?

A Loan Against Property (LAP) is a secured funding option. In that, you mortgage an existing residential or commercial property to raise funds for any financial need. That can be anything from business expansion or education to medical emergencies or debt consolidation.

A home loan is strictly for property purchase. But LAP offers flexibility in usage while leveraging your real estate asset.

Key Features of LAP

  • Purpose: No restrictions—can be used for personal or business needs.
  • Collateral: Residential, commercial, or industrial property (self-owned).
  • Loan Amount: Up to 60–75% of the property’s market value.
  • Tenure: Typically 5–15 years (shorter than home loans).
  • Interest Rates: Higher than home loans but lower than personal loans (varies with credit profile).
  • Tax Benefits: Only applicable if funds are used for business purposes (under Section 37(1) of IT Act).

While LAP provides quick access to large sums, there is a default risk—property seizure. But still, if you need high-value funds at lower rates than unsecured loans, get the best loans against property.

How to Apply for a Loan Against Property?

This loan/funding option lets you unlock the value of your real estate while keeping ownership. Whether funding a business, education, or medical needs, follow this step-by-step process for a smooth application:

Step 1: Check Eligibility & Credit Health

First and foremost, you need to check the loan eligibility and credit health to see if you are good for it.

  • Credit Score: Aim for 750+ for better rates.
  • Income Stability: Lenders assess repayment capacity (salaried/self-employed).
  • Property Equity: Loan amount depends on property value (usually 50–75% of market value).

Step 2: Compare Lenders

Compare interest rates (fixed vs. floating), processing fees (1–2% of loan amount), foreclosure charges, and tenure (up to 15 years).

Step 3: Gather Documents

Next up, you need to gather the necessary documents as stipulated by the lenders.

For Borrower:

  • KYC (PAN, Aadhaar, passport)
  • Income proof (salary slips/ITR + bank statements)
  • Existing loan details (if any)

For Property:

  • Title deed (clear ownership)
  • Approved building plan (if under construction)
  • NOC from society/bank (if mortgaged earlier)

Step 4: Submit Application

Apply online (bank website/aggregator) or offline (branch visit). Pay the processing fee (a percentage of loan amount) as set by the lender.

Lenders inspect property location, legality, and market value. Legal verification ensures no disputes or encumbrances.

Step 6: Loan Approval & Disbursement

Sanction letter issued with loan terms. Sign agreement & mortgage deed (property remains collateral). Funds disbursed in 48 hours to 1 week post-approval.

Check prepayment penalties (usually 2–5% of outstanding amount) and understand that non-payment risks property seizure.

Difference Between Home Loans & Loans Against Property

FactorHome LoanLoan Against Property
PurposeExclusively for buying, constructing, or renovating a residential property.No restrictions—can be used for business expansion, medical emergencies, education, debt consolidation, etc.
Loan Amount & LTV (Loan-to-Value) RatioUp to 75–90% of the property’s market value.Lower LTV—typically 50–75% of property value (higher risk for lenders).
Interest RatesLower rates (priority sector lending, tax benefits).Higher than home loans (but lower than personal loans).
Tenure & RepaymentLonger tenure (up to 30 years).Shorter (usually 5–15 years).
Tax BenefitsFor principal repayment, there is deduction under Section 80C (up to ₹1.5 lakh/year). And for interest payment, there is deduction under Section 24(b) (up to ₹2 lakh/year).No tax benefits unless used for business (interest claimed as business expense).
Risk FactorProperty is mortgaged, but the loan’s purpose reduces default risk.Higher risk—default can lead to property seizure.

FAQs on Home Loans and Loans Against Property

Can I use a loan against property (LAP) to buy another house?

Yes, but a Home Loan is better suited for property purchase due to lower interest rates and tax benefits. LAP is ideal for other financial needs like business or medical expenses.

Which loan has a faster approval process—Home Loan or LAP?

LAP is usually faster (3-7 days) since the property is already owned and evaluated. Home Loans take longer (7-15 days) due to builder approvals and legal checks.

Can I prepay a home loan or LAP without penalties?

Home Loans (floating rate) cannot have prepayment penalties (RBI mandate). But LAP prepayment charges vary (usually 2-5% of outstanding amount)—check lender terms.

Can I transfer my existing Home Loan/LAP to another lender?

Yes! Balance transfers help secure lower rates. Compare processing fees and foreclosure charges before switching.

Which loan is better for debt consolidation?

LAP is preferable for debt consolidation due to lower interest rates than personal loans. But ensure repayment discipline to avoid property risks.

Let’s Conclude

Both home loans and loans against property (LAP) allow you to leverage real estate for financing, but they serve different purposes.

A home loan is ideal if you’re buying or constructing a house, offering lower interest rates, longer repayment terms, and tax benefits. On the other hand, a LAP provides flexibility—you can use the funds for any need, but with higher interest rates and shorter tenures.

Before deciding, assess your financial goals, repayment capacity, and risk tolerance. And for the best financing options, consult with Nihal Fintech today!