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.
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