Buying a resale property makes good sense, particularly if you get a good property at a good price and in a good locality. However, it is important to know the procedure that you will need to follow and the aspects that you should keep in mind, before deciding in favour of a resale property. More over, you can also get a loan for buying a resale property, although there could be some additional legal and procedural requirements.
No construction risk (i.e., the flat is ready for occupation). No hassles on service tax, VAT, etc., which can be a big issue while buying under construction property.
As a first step, you will need the chain of title of the existing owner. This means that if the existing owner has also bought the property on resale, the original documents relating to that sale and so on, till the first purchase, will be needed. Another complication is that sometimes, if any of the documents in the chain of title is not adequately stamped as regulated, then the bank may not be willing to provide a housing loan. Also, if the building is more than 10 years old, then some banks may have a problem with providing loan for such a property.
The cost of the property that you are planning to buy has a direct impact on your loan eligibility. The bank which finances your house purchase, naturally wants you to put in a contribution towards the cost of the house, so that you have a stake in its continued maintenance. This also ensures that if the value of the house goes down in future, the bank’s outstanding loan amount is lower than the market value of the property. Hence, if a house costs Rs five lakh, the bank may require you to fund at least Rs 1,00,000 from your own sources, while the remaining Rs four lakh is provided as loan, subject to your eligibility. The amount you are expected to put in is called margin money or down payment.
The valuation, done by the technical experts of the bank, may be lower than the price that you are actually paying for the property. You will be eligible for a lower loan amount, as the bank caps the loan amount at around 80 per cent of the valuation arrived at, by its technical consultant. It may be useful in this case, to pay a small fee and get the flat valued beforehand and approach banks at a later stage. Even if your income is enough to justify a higher loan, the bank will give a maximum loan based on its margin requirements. For instance, if your income justifies a loan amount of Rs six lakh and you are buying a house that costs Rs five lakh, the bank may restrict the loan to Rs four lakh, which is 80 per cent of the property’s value. The down payment can also vary, depending on the age of the property. If the property is older, the down payment requirement may be higher.
Moreover, most banks have a cap on the maximum age of the building at the end of the loan tenure. This would normally be 50 years. So, if you are buying a property on resale and the current age of the building is 38 years, the probability of getting a tenure that is higher than 12 years is very low, despite the fact that you may otherwise be eligible for a 20-year loan.
Before zeroing in on a resale flat, it is important to check whether the property is already mortgaged. It is only at the time of handing over the token amount and handing over the agreement that one usually comes to know that the original documents are with the bank. If the flat has already been mortgaged by the existing owner, then the original documents will only be released after the seller’s bank receives the balance amount. Unless the original documents are released, the home seeker cannot get a new loan and until he raises a new loan, the existing owner cannot repay the existing mortgage – resulting in a catch 22 situation. Besides, sometimes societies ask a huge amount for transferring the flat. So, check the approximate amount that you will need to pay.
Typically the seller’s bank provides letter(s) to the seller or to the buyer’s bank, confirming:
a) The amount on payment of which the loan will be fully paid off,
b) The original documents which are in the bank’s custody and
c) A confirmation that they will release the documents within a fixed number of days, after receiving the payment mentioned in (a). The buyer, then, needs to put in the entire down payment and his bank pays the balance amount to the seller’s bank. Once the seller’s bank is paid off, the documents are released. The seller’s bank then makes the balance disbursement, directly to the seller.