Sell a Home with an Outstanding Loan

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Whenever you want to sell a house, whose loan is not yet fully paid, it will always puzzle the common man. This will get further complicated when the prospective buyer also wants a housing loan to finance his purchase.

There can be no of reasons for you to sell the house. Maybe you are finding it difficult to service the EMIs. Or you want to shift to another location or a better house. Whatever be the reason, selling a house with a mortgage is not easy. The actual procedure differs under various situations.

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Generally while financing a housing loan two factors are important:

  • Title of the property
  • The repaying capacity of Borrower i.e. Credit of Borrower.

Three different cases arise:

  • Buyer takes loan from the same lender

In this situation, the bank, buyer and seller enter into a tripartite arrangement. Since the bank already has the property documents, the background checks relevant to property can be done quickly, making the sale easier for all parties. Part of the new loan will be used to settle the original loan and the remainder will be given to the seller as the price for the property. This will again depend on buyer’s capacity to repay and pay instalments.

  • Buyer takes loan from another lender

Background checks for the property will take longer time. After processing, the bank issues two payments: one, to close the original loan, and two, towards the seller as the remaining price of the property.

As with the processing of any home loan, both these options will involve processing fees, background checks, establishing the buyer’s loan eligibility, verification of property papers, etc.

  • No loan. Buyer pays from own savings

In this case, the buyer will have to make two payments: one, to the bank to help close the loan and release the original documents of the property; and two, to the seller as the price of the property.

  • Property is not registered

Banks and financial institutions insist on registration of property after the approval of a loan. In a situation where this has not happened also, if the buyer wants to buy an unregistered property using his own funds, he may have to enter a three-way arrangement with the builder and the seller, pay the price of the property, along with the relevant processing fees and transfer charges, obtain the requisite NOCs, and have the property registered in his name.

In case the buyer wants to finance the purchase with a home loan, he may find the banks insisting on full documentation of the property. Banks will be hesitant to finance properties where the ownership is unclear. The buyer may simply insist that the seller and the builder register their sale. After the registration, a fresh loan can be availed to finance the resale of the property, assuming all other conditions have been met. This will, of course, increase the cost of registration and time for undergoing these processes.

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