Buying a house on resale?

Buying a resale property makes good sense as you get good properties at good prices in a good locality. Moreover you can get a loan for buying resale property though there could be some additional legal and procedural requirements.

It is important to know what procedure you will need to follow and what aspects you should keep in mind before deciding in favour of a resale property. 

As a first step, you will need the chain of titles of the existing owner. This means that if the existing owner has also brought the property on resale, the documents relating to that sale and so on till the first purchase will be needed in the original. Another complication is that, sometimes, if any of the documents in the chain of titles is not adequately stamped as regulated then the bank may not be willing to provide the loan for this purpose. Also if the building is more than 10 years old, then some banks may have a problem with providing a loan for such property.

The cost of the property 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 the 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 around 80 per cent of the valuation arrived at by its technical consultant. It maybe 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, being 80 per cent of the property 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 higher than 12 years is very low, despite the fact that you may otherwise be eligible for a 20-year loan. This reduction of tenure would reduce the loan eligibility. Advantages of buying a resale flat:

No delay in construction risk; flat is ready to move in.
No hassles on service tax, VAT etc. which can be a big issue while buying under construction property.

Check for mortgages

But before zeroing on a resale flat, it is important to check on the points like if the property is already mortgaged and it is only at the time of handing over token amount and handing over the agreement, you come to know that original documents are with the bank.

The flat has already been mortgaged by the existing owner and the original documents will only be released after the 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. A real catch-22 situation. Besides, sometimes societies ask huge amounts for transferring the flat, so check the approximate amount you will need to pay.

Though it is not a bad idea to buy a resale flat, it is important to check all these factors before hand and then initiate the procedure of home loan with the lender.