Buying a resale property? Do your homework first

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 title of the existing owner.

This means that if the existing owner has also bought the property on resale, the documents relating to that sale going back to the very first purchase from the original developer will be needed in the original.

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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 the loan for this purpose.

Also if the building is more than 10-year-old, then some banks may have a problem with providing a loan for such a transaction.

In other words, 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 and proper upkeep.

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 5 lakh, the bank may require you to fund at least Rs 100,000 from your own sources, while the remaining Rs 4 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 maybe useful in this case to pay a small fee and get the flat valued before hand 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 6 lakh, and you are buying a house that costs Rs 5 lakh, the bank may restrict the loan to Rs 4 lakh, this amount 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 tenure higher than 12 years is very dim, 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 your dream home is ready to move in

No hassles on service tax, VAT etc. which can be a big issue while buying under construction property

But before zeroing on 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 existing owner has already mortgaged the flat 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 amount 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.