How to Use Your Home Loan for Purchasing Commercial Property

Thinking of venturing into the world of commercial real estate? You're not alone. Many individuals dream of owning a commercial property as it offers lucrative opportunities for businesses and investments. However, purchasing commercial property requires significant financial investment, making it seemingly out of reach for most individuals.

Many customers think a home loan can also be utilised for commercial property purchase. However, that’s not the case. A home loan is designed only for purchase of a residential house or property. So, what’s the alternative? Apply for a commercial property purchase loan – loans designed specifically for commercial property purchase. 

What is Commercial Property Purchase Loan?

Also known as Non-Residential Property Loan, Commercial Property Purchase Loans are secured loans designed specifically for self-employed professionals and non-professionals who want to construct, renovate or buy an office space to establish their business. The tenure usually ranges between 3 years and 10 years. For example, Ujjivan SFB offers commercial property loans up to ₹30 lakh at affordable interest rates and flexible repayment tenures up to 7 years.

How Commercial Property Purchase Loan Works

A commercial property purchase loan is similar to home loan. As in it’s a secured loan where the concerned property acts as the collateral. The ownership of the commercial property will be transferred to you once you repay the loan amount. 

These loans can only be utilised for purchasing or renovating a commercial/non-residential property. The interest rate could be slightly higher compared to regular home loans.

Making Financial Calculations

When it comes to utilising home loan for purchasing commercial property, it's crucial to have a clear understanding of your financial calculations. 

Let's break down some key calculations that will help you make informed decisions:

1. EMI Calculation: Before availing a loan, it's essential to calculate your EMI. Your EMI is the fixed monthly payment you need to make towards repaying your loan. An online home loan EMI calculator can simplify this process by providing quick and accurate results. Input the loan amount, interest rate, and tenure to determine your monthly installment.
2. Loan Eligibility Calculation: To understand how much loan you are eligible for, financial institutions consider various factors such as your income, credit score, existing obligations, and the value of your collateral. Use an online loan eligibility calculator to get an estimate of the loan amount you may be eligible for based on these factors.
3. Return on Investment Calculation: Once you purchase a commercial property, it's important to analyse its potential returns on investment. Calculate metrics such as rental yield, capitalisation rate, and cash-on-cash return to assess the profitability of your investment.

Commercial Property Loan Tax Benefit

Commercial property owners who have taken a loan to renovate or refurbish the property can avail tax benefits up to ₹2 lakh on the interest paid towards the loan under Section 24(b) of the Income Tax Act.

Documents Required for Commercial Property Loans

Here’s a generic representation of the documents you may need to avail a commercial property purchase loan. In case you want to avail the loan from Ujjivan, please consider contacting the bank for further information. We’ll be more than happy to assist you in your commercial property purchase journey.

• Identity Proof: Aadhaar card, PAN, Voter ID card, driving licence, passport, etc.
• Income Proof: Last 3 years’ IT Returns or last 3 years’ financial statements
• Proof of business existence
• Last 6 months’ bank statements
• Processing fee cheque
• Title deeds of property
• Proof of number of encumbrances on the property
• Application form with a duly signed photograph 

Disclaimer: The above information is a generic representation of the documents you might need. For accurate and elaborate details, please contact the bank.