A property with an outstanding home loan is the one that is classified as a mortgaged property. Investing in a house that is on mortgage has several advantages. Firstly, the buyer has the benefit of getting a ready house in a good and established location with ready facilities. Secondly, the buyer deals with an individual seller rather than a sales team trying to hard sell a property. But the biggest advantage by far is that the top lending bank or NBFC has already conducted the necessary evaluations and verification about the property in question. As a result, the buyer of a mortgaged property can rest assured that the property has already received all the requisite and important approvals from concerned authorities.
Loan against property or mortgage loan is different from buying a mortgaged property. However, one common problem faced by the buyers is a lack of clarity on how to buy a mortgaged property? In the following sections we will provide you with key information regarding the procedure.
How a mortgaged property deal benefits both the buyer and the seller
Let’s consider the following example: A few months ago, Ram bought a 2-bedroom flat for Rs. 55 Lakhs. The seller, Ashvin, had an outstanding loan of Rs. 10 Lakhs on this house. Ram made a down payment of Rs. 20 lakhs, part of which Ashvin used to prepay his outstanding loan amount. Because of this deal, Ashvin managed to have the original property documents released from the bank. Based on these documents, Ram got the property registered in his name and he also managed to get a home loan for the balance amount, which was processed within just 10 days. This was a classic win-win situation, where, Ram got a good deal on the house, Ashvin managed to sell his mortgaged property with its outstanding loan to Ram at a decent price, while using part of the proceeds to pay off his outstanding home loan.
Get Home Loan at the Low Interest Rate from Top Lenders Apply Now
How to Buy/Sell a Mortgaged Property in India?
Read below, how to buy or sell mortgaged property in India? How sale agreement is made? How ownership transferred? etc.
How to buy a house against which loan is outstanding?
The main documents needed to sell a residential property, even if it is mortgaged, are the sale/purchase deed of the property (it confirms the seller’s ownership and his right to sell it) and in some cases the housing society share certificate. In case the property has changed hands several times, the prospective buyer has the right to ask for a copy of all previous deeds, so as to confirm the authenticity of the property as well as all previous deals which involved the house. The buyer also requires copies of stamp duty and all requisite registered house documents.
However, in case of property purchased through a home loan, all original papers are mortgaged with the bank. Hence, the seller could provide the buyer with photocopies of the required documents to initiate the deal. Based on the type of ownership and property, additional documents may be required such as a no-objection certificate (NoC) from the housing society and a documented consent from the co-owners in case the property is jointly owned.
When the buyer avails a home loan to purchase a mortgaged property
Paying off the initial loan– In the event that the buyer considers taking a home loan to fund the purchase of a mortgaged property, the seller will have to first pay off the home loan. It is not possible to simply transfer the loan from the seller to the buyer. This holds true even if the buyer avails a home loan from the same bank where the seller has mortgaged his property; the bank will still insist on closing the earlier loan first and only then the sale can be completed and a new loan will be issued for the property. In essence, this means that that the buyer purchases a mortgage-free property because the process for the buyer getting his home loan is initiated only after the previous loan has been paid off in full.
Treatment of the home loan taken by the buyer- For the buyer to be eligible for a new home loan, he/she needs to submit all financial documents to the bank, and the bank should be convinced about the buyer’s repayment capacity. The entire loan process is repeated just like taking a fresh loan. Therefore, all the relevant document submissions, verifications, evaluations and approvals will also take place as in case of a fresh loan. This also means that the standard costs of processing a new loan application will apply.
Fees, charges, and interest rates- The new loan will involve payment of processing fees as well as all relevant legal and administration charges. At its discretion, the bank may waive off some of these charges. The interest rate on this loan will be as per the current MCLR plus the spread determined by the lender based on key features such as income level, current liabilities, payment history with respect to loans/credit cards, etc.
In fact may experts say it is better to take a home loan from the same bank where the seller’s property is mortgaged because in this case, the bank only needs to scrutinize the buyer’s financial eligibility before furnishing the loan. This makes the overall process faster because the bank already has all the property documents.
Get Home Loan at the Low Interest Rate from Top Lenders Apply Now
When the buyer pays for the property with his/her own funds
If the potential buyer wants to pay for the mortgaged property using his own funds without taking a home loan, the procedure is much simpler.
Letter from the bank- Firstly, the seller will need to obtain a letter from the bank where his property is mortgaged, wherein the bank states that they agree to relinquish the original property documents after the full and final payment has been made on the outstanding home loan. Following this, the buyer will need to pay an amount equivalent to the loan amount outstanding at the time of purchase. After this, the bank initiates the process of releasing the original property documents. The balance amount would be provided to the seller by the buyer directly.
Paying off the outstanding loan- The lender usually specifies a date by which the seller must pay off the outstanding mortgage loan. The time that the bank agrees to give the seller for making complete payment of the outstanding home loan can be worked out mutually between the two parties. In case the money is not paid by the due date, the bank, at its discretion, may extend the date. However, the bank will charge a penalty/premium over and above the outstanding principal amount in such cases. The bank usually decides this penalty amount when fixing the due date.
Once the borrower has paid off all outstanding dues, the bank gives a ‘No Dues’ certificate/letter, which officially certifies that there are no outstanding dues on the housing loan. The original documents kept with the bank as security are released usually within 5-10 working days after the money is received.
Get Home Loan at the Low Interest Rate from Top Lenders Apply Now
Conclusion on How to Buy/Sell Mortgage Property
Buying a mortgaged property can sometimes be tricky since different rules govern the purchase of different kinds of properties. Apartments entail different rules as opposed to independent houses, while the rules governing the sale of a plot of land involves different buying legalities and procedures. Hence, it is always better to take legal guidance before proceeding to purchase a mortgaged property. But if you manage to pull it off, chances are you will have made one of the most lucrative and hassle-free investments of your life.